Workmen Compensation

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What is the Average Clause in Workmen Compensation Insurance?

An average clause in workmen compensation insurance comes into play when the absolute number of employees changes during the term of the policy. The change in the number of employees can be due to the joining of new employees or the exit of old employees once the policy comes into force. Workman compensation is an unnamed insurance policy. This means that individual workers do not need to be named. However, an absolute number of workers needs to be provided. To address the gap in the number of employees (or average income) covered and the actual number of employees, the existing insurer can prorate the sum assured to cover all available employees under this clause.

Conditions in which the average clause applies

The average clause applies to the policies with the following conditions:

  • If the insured lists a lower number of employees under the policy than the actual number of employees at the date of the accident:
    • All the employees need not be on duty on the day of the accident.
    • The insurer will indemnify the firm proportionately,
    • Sum would be prorated to ensure that all the employees employed at the date of the accident are covered proportionately to the number of employees listed under the policy.
  • If the company (insured) has declared a lower amount of wages for this policy than the actual wages disbursed until the date of the accident:
    • The insurer has to establish that wages paid at the time of the accident are higher as compared to the wages declared in the policy by comparing:
      • The wages declared as per average wage and number of employees.
      • The wages paid at the time of the accident.
    • The insurer will indemnify proportionately to the declared wage over the paid wage till the date of the accident.
  • The Average Wage limits Insurer’s Liability:
    • Employer’s liability is estimated basis the higher wage for an employee
    • Insurer’s liability will remain limited to the average wage of the category to which the employee belongs
    • However, insurer may revise the indemnity upon receiving documents that substantiate the proof of higher wage paid to the employee

Whenever multiple of these clauses apply, the insurer will opt for the clause which offers the least payment towards the insured (the employer).

Additional Read: What are the Duties of the Employer Under Worker Compensation Insurance at the time of loss? 

Case on Average Clause in Workmen Compensation Insurance

Craft Moulders Pvt. Ltd. is one of the largest wood furniture suppliers in India. Total employee strength there stood at 122 when they renewed their worker compensation insurance for 2017. Craft’s promoters started another manufacturing unit in Mysore early this year due to the popular demand.

The promoters transferred 15 employees from Craft Moulders to the new unit to establish the manufacturing in full swing. In June 2017, Craft Moulder had only 100 employees remaining. Shobh Ram, an employee at Craft, suffered injuries while unloading the wooden logs from the carrier.

His treatment at the hospital lasted for about three weeks. Under workmen compensation insurance, a claim was filed and he was paid as per his monthly salary.

The new setup saw many new workers joining the unit. The worker strength went up by 30 to130 in July 2017, from the time of purchase of the policy.

The insurance covered 100 employees at an average income of Rs. 15,000 per month. On July 15, two employees suffered injuries while transporting goods by road. They were hospitalized for a month at least, and they could resume work only after about two months. As per the claim filed in this case, the insurer will only bear the prorated claim as per the new average wage and number of employees in the firm. Craft Modular had to bear the remaining amount.

The amount of claim as per their monthly salaries for both the driver and worker can be about Rs. 12,000 (Rs. 3000 payable every half months for two months). The insurer will prorate the amount as per the new employee strength of the company:

3000 × 100 ÷ 130 = Rs. 2308 per half month.

Craft Modular Pvt. Ltd had to pay the remaining Rs. 692 per half month.

Conclusion

Under the average clause, the sum insured is modified by the insurance company to cover the changed number of employees, subject to certain terms and conditions. So, a lower amount will be paid if there are more workers than initially declared at the time of a claim.  However, the payment made in above case was separate from the healthcare expenses as covered under the plan. The insurer also prorates the medical costs before payment. In the case above, since there was no change in the average wage of the employees in this category only one clause was applicable.

The claims estimate the amount is complicated and follows several different regulations.

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