TN S.B. 721 Proposing “Opt-Out” From Traditional Workers Comp Coverage

Senate Bill 721 has been introduced in the Tennessee legislature by State Senator Mark Green (R) from Clarksville. If passed and eventually enacted into law, many Tennessee employers would be allowed to “opt-out” of the state’s traditional workers’ compensation system, by replacing it with private benefit plans, somewhat like those chosen by some Texas and Oklahoma employers for their employees. Green is a doctor, with specialized training in emergency medicine. The Bill would enact a new Chapter 50 to the State Code to be known and cited as the “Tennessee Employee Injury Benefit Alternative.”

The relevant provisions of this Bill, if it is enacted into law in its present form, are as follows:

  • It would apply only to employers with five (5) or more employees
  • It would exclude construction and some other service providers, as set out in TN Code Ann. § 50–6–106(1)-(7)
  • It would require the employer to adopt a written benefit plan that provides at least the following:
    • Medical expense coverage for at least 156 weeks and $300,000 per employee
    • Temporary Total Disability benefits of at least 70% of AWW up to 110% of the state AWW for at least 156 weeks
    • Death and scheduled dismemberment benefits of up to $300,000 per employee
    • A combined single limit for all benefits payable due to an occupational injury, provided that the combined limit is at least $750,000 per employee and $2,000,000 per occurrence
    • It would not generally limit the right of the employee to recover under a cause of action for employer negligence.

 As mentioned above, an employer who utilizes proposed Chapter 50 to “opt-out” of the traditional workers’ compensation system, will generally forfeit the exclusive remedy defense in any civil action filed by an employee against the employer. The plaintiff in such a civil action must, however, prove negligence of the employer. Damages, however, in such civil actions would be limited, as follows:

  • Economic damages in an amount not to exceed $1,000,000 per employee and $5,000,000 per occurrence
  • Non-economic damages as determined under TN Code Ann. § 29–39–102
  • Punitive damages as determined under TN Code Ann. § 29–39–104

In any such civil action brought under this proposed Bill, the employer would not be able to defend on the ground that the injury was caused by a co-employee’s negligence. The employer would be able to defend on grounds that the employee’s injury was caused by the employee’s sole negligence, by the failure of the employee to follow known safety rules, or that the injury was occasioned by the employee’s willful act or due to the employee’s intoxication.

Under this proposed Bill, a qualified employer’s injury benefit plan established in compliance, will not be maintained solely to comply with the state’s workers’ compensation law, but it would be the sort of welfare benefit plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA).

The TN bill does not exactly track either Texas or Oklahoma. In Texas there are three (3) options an employer has, (a) do nothing, (b) to provide traditional workers’ comp coverage under the State Act and thereby enjoy the exclusive remedy, or (c) provide benefits under an employee benefit plan where there is no exclusive remedy. In Oklahoma if the employers “opt-out” from the traditional State Act provided benefits, they still maintain the exclusive remedy defense.

Some Of Our Thoughts And Opinions

It is without question that TN S.B. 721 will be reviewed and debated in great depth. Some of our thoughts are along the following issues and questions:

  • It seems to provide for limited medical benefits; different than the traditional State Act coverage;
  • If the above presumption is correct, then does the proposed bill create two (2) separate and distinct classes of employers?

All that remains to be seen, as the legislative session progresses, so stay tuned.

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Tony Damoulis leads our Risk Management Program and can be reached via email.