Stradian, January 2009
Workplace injuries affect nearly a quarter of a million Texas workers every year. Most of those injured workers have access to workers’ compensation coverage. The Texas workers’ compensation system is designed to be a “no‐fault” system where workers injured on the job can receive medical and wage benefits – regardless of fault – in exchange for granting employers immunity from liability litigation. This contract guarantees a safety net for Texas workers and financial security for Texas employers.
The system, though, has its flaws. When the Texas workers’ compensation law was first enacted in 1913, the structure of the Texas economy was relatively simple; employees arrived for work at a job‐site that was almost exclusively operated by their direct employer. However, the Texas economy has become more dynamic and business operations have become much more integrated. The new Texas economy features much more complex work environments, involving multiple employers working side‐by‐side at the same job site.
In a complex work environment, workplace injuries can be the result of any number of factors, and can potentially involve another party that is not the direct employer of the injured worker. The workers’ compensation system does not preclude an injured worker from seeking damages directly from any 3rd party that is deemed responsible for the injury. The one exception to this statute grants immunity to 3rd parties that directly purchase and administer the workers’ compensation policies of a subcontractor’s employees, though the administrative burden of this structure makes it seldom utilized.
As a result of the limit of immunity only to the direct employer or statutory employer, accidents where a 3rd party is involved can give rise to liability lawsuits. As a practical matter, therefore, the availability of legal recourse against 3rd parties limits the “no‐fault” intent of the system. While the risk for any individual business in becoming the subject of a 3rd party lawsuit is low, the cost and focus required for Texas employers to manage the risk is significant. Moreover, the litigation option is inefficient in distributing benefits to injured Texas workers.
This report presents a brief history of workers’ compensation in Texas, the costs of workplace injuries on subscribers to the system, and the inefficiencies of the 3rd party liability system. The report also discusses the deficiencies in the distribution of benefits to Texas workers with workers’ compensation insurance. Also highlighted throughout the report are the major levers available within the Texas system that are believed to impact workplace safety and contain costs. Because of the 3rd party exception in the Texas workers’ compensation system, significant attention is paid to the effects of litigation against 3rd parties and its impact on injured Texas workers and employers.
This report is a fact‐based analysis of the Texas workers’ compensation system, and does not intend to make specific policy recommendations. It does, however, discuss possible scenarios for addressing key deficiencies of the system. The scenarios presented take two principal factors into consideration: 1) How can benefits to injured Texas employees be improved, and 2) How can the “frictional” costs of the system be reduced? These questions are evaluated against the issue of primary importance to all Texas employers, employees, and government agencies – i.e., maximizing workplace safety.