Monopolistic States for Workers Comp: Placement Guide

Four states, North Dakota, Ohio, Washington and Wyoming, do not let private insurers sell workers compensation. Employers there must buy it from the state fund, so there is no renewal to shop. An employer with workers in one of these states needs a separate state fund policy for that payroll, plus stop gap employers liability added to its commercial general liability (CGL) policy, because a monopolistic state can't be listed in Item 3.A or Item 3.C of the standard policy.

To follow the rest, it helps to know the front page of a workers compensation policy. It has numbered items, and two of them do most of the work.

What are the four monopolistic states and their funds?

The four monopolistic states are North Dakota, Ohio, Washington and Wyoming, and each has a single state fund that writes all workers compensation there. Each fund has its own classification and rating system instead of NCCI's, so a multistate employer's class codes and experience rating do not carry over from state to state. Washington L&I also bases premium on hours worked rather than per $100 of payroll, the only state to do so,^[1] so vacation and sick time are not part of the exposure base.

Only Ohio and Washington let qualified employers self-insure. In North Dakota^[2] and Wyoming^[3], there is no alternative: employers must buy coverage from the state's single fund.

How do Item 3.A. and Item 3.C. handle monopolistic states?

Neither item can cover a monopolistic state. The information page of the standard workers compensation policy sets its territory in Items 3.A and 3.C. Item 3.A turns on Part One statutory coverage for the states listed there, but because no private carrier can write a monopolistic state, one can never be listed. Item 3.C (other states insurance) covers states where work begins after the policy starts, but it excludes these four states by name.

The only exceptions are the ones each fund grants itself. Washington L&I has reciprocal agreements with eight states, Idaho, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah and Wyoming, but the Montana and Nevada agreements do not include construction work.^[4] Don't assume a reciprocal agreement applies until the fund confirms it in writing.

Remote employees raise the same problem. An employee working from home in Ohio is Ohio payroll, which neither item can reach. The employer must enroll with the Ohio BWC,^[5] the private carrier's auditor will remove that payroll from the standard policy, and the fund will not backdate coverage.

What is stop gap coverage and why do you need it?

Stop gap coverage is employers liability for monopolistic-state employees, added by endorsement to the client's commercial general liability policy. The state funds pay statutory benefits but provide no employers liability. On a standard workers compensation policy, Part Two covers suits outside the benefit system, such as third-party action-over claims, loss of consortium or dual-capacity claims, and other suits alleging the employer was negligent. Stop gap puts that protection back on the CGL, which would otherwise reject these suits under its employee injury exclusion.

Most umbrellas require $1,000,000 of underlying employers liability, so quote stop gap at that level, not at the Part Two minimums:

For a business with workers outside the monopolistic states, Menlo quotes workers compensation insurance on the standard policy.

How do certificates of insurance work with state funds?

A certificate of insurance won't show the employers liability gap, because the fund issues its own certificate and your ACORD 25 cannot stand in for coverage your agency doesn't control. Show the stop gap in the general liability section of the certificate of insurance. Never enter a fund-issued policy in the workers compensation box as if your agency had placed it, a common source of errors and omissions claims.

This guide is for educational purposes and summarizes standard NCCI policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

Monopolistic state checklist for each renewal

For any client with work in North Dakota, Ohio, Washington or Wyoming, confirm three things at every renewal: the client is enrolled with the state fund before work starts, the state is not listed in Items 3.A or 3.C, and the stop gap endorsement is on the CGL at $1,000,000. In these four states workers compensation comes only from the state fund, which pays statutory benefits but no employers liability, and the funds do not backdate coverage.