Texas Workers' Compensation for the P&C Exam: Non-Subscriber Rules & Coverage

Workers' Compensation is the only major insurance topic where Texas does something fundamentally different from every other state. In 47 of the 50 states, employers are required to carry workers' comp insurance. In Texas, it's voluntary for most private employers — they can choose to opt out and become what's called a "non-subscriber."

This single fact is why Texas Workers' Comp shows up in roughly 8–12 questions on the P&C exam, despite WC being a smaller piece of the casualty section overall. The non-subscriber rules, the three lost common-law defenses, and how Coverage A interacts with Coverage B are exam staples — and they trip up candidates who studied generic national WC content rather than Texas-specific rules.

This guide covers what you need to know to nail the WC questions on test day. Master this and you've banked another 10% of the score you need to pass.

A Workers' Compensation and Employers Liability policy actually contains two separate insurance agreements:

• Coverage A — Workers' Compensation: Pays the statutory benefits required by the state's WC law. No dollar limit; the policy pays whatever benefits state law mandates. The benefit amounts (medical, lost wages, death, etc.) are set by Texas statute, not by the policy.
• Coverage B — Employers Liability: Pays for lawsuits an employee brings against the employer outside the WC system. Standard limits start at $100,000 per accident for bodily injury, $500,000 policy limit for disease, $100,000 per employee for disease.

Coverage B exists because WC has limits — there are situations where an employee can sue the employer despite WC. Examples include third-party-over actions, dual-capacity claims, and intentional tort claims. Coverage B fills these gaps.

Common exam pattern: "Coverage A pays statutory benefits; Coverage B pays for what?" → Lawsuits brought by employees outside the WC system, including third-party-over claims and dual-capacity claims.

Texas is the only state where most private employers can elect not to carry workers' compensation. Employers who opt out are called non-subscribers.

Employers might choose to be non-subscribers for several reasons:

• WC premiums in Texas can be expensive, especially for high-risk industries
• Some employers prefer to self-fund or use occupational accident insurance
• Large employers with strong safety programs may calculate that paying claims directly costs less than insuring

But non-subscriber status comes with serious legal consequences. Specifically, the employer loses three common-law defenses if an employee sues for a workplace injury:

1. Contributory negligence: The defense that the employee's own carelessness caused or contributed to the injury.
2. Assumption of risk: The defense that the employee knew the job was dangerous and accepted that risk.
3. Fellow-servant rule: The defense that the injury was caused by a coworker's negligence rather than the employer's.

Without these defenses, it becomes much easier for an injured employee to sue and win damages — including pain and suffering, which WC doesn't pay. This is the trade-off: subscribers get sued less easily but pay premiums; non-subscribers save premiums but face significantly higher liability exposure.

This three-defenses rule is one of the most-tested concepts on the entire Texas P&C exam. Memorize it cold.

Even though Texas WC is generally elective, several specific employer types must carry coverage:

• Public employers (state, county, municipal) — required to provide WC for their employees
• Building/construction contractors on public projects — required to carry WC for employees working on the project
• Motor bus companies
• Some inherently dangerous occupations defined by Texas Labor Code

Common test question: "In Texas, which of the following employers must carry workers' compensation?" → Public employers and contractors on public projects must; private employers generally may elect.

Texas WC pays four types of income benefits to injured workers, each kicking in at different stages of recovery. Memorize the acronyms and what each covers:

• TIBs — Temporary Income Benefits: Paid while the worker is unable to earn pre-injury wages, before reaching maximum medical improvement. 70% of average weekly wage (AWW), max 104 weeks.
• IIBs — Impairment Income Benefits: Paid after the worker reaches maximum medical improvement (MMI) and receives an impairment rating. 70% of AWW. Duration = impairment rating × 3 weeks (e.g., 12% rating = 36 weeks of IIBs).
• SIBs — Supplemental Income Benefits: Available to workers with at least a 15% impairment rating who haven't returned to work earning at least 80% of pre-injury wages. Paid quarterly after IIBs end.
• LIBs — Lifetime Income Benefits: Paid for the worker's lifetime in cases of catastrophic injuries (loss of both eyes, both feet at or above the ankle, both hands at or above the wrist, etc., or specific severe brain injuries). 75% of AWW.

Common exam pattern: "A worker reaches MMI with a 12% impairment rating. How are IIBs calculated?" → 70% of AWW for 36 weeks (12 × 3).

The IIBs duration formula (impairment rating × 3 weeks) is one of the most common exam-day calculations in this section.

If a worker dies from a covered injury, Texas WC provides:

• Death benefits to eligible beneficiaries — typically 75% of the deceased worker's AWW, payable to the surviving spouse and minor children. Spouse benefits typically continue until remarriage. Children's benefits continue until age 18 (or 25 if enrolled in higher education).
• Burial allowance — a specific dollar amount toward funeral expenses (subject to legislative updates).

Death benefits are statutory — set by the Texas Labor Code, not negotiated. The exam tests whether you know this is statutory benefit, not policy-determined.

Some states (Ohio, North Dakota, Washington, Wyoming) operate monopolistic state funds — the state itself is the only legal provider of WC insurance. In these states, private insurers cannot write Coverage A.

The state fund provides only Coverage A (statutory benefits) — it does NOT provide Coverage B (Employers Liability). This creates a gap for employers who operate in monopolistic states: they have no liability protection if employees sue outside the WC system.

Stop-gap coverage is the solution. It's an endorsement added to either:

• The employer's WC policy (in non-monopolistic states), extending Coverage B to monopolistic state employees, OR
• The employer's Commercial General Liability (CGL) policy, providing employer's liability protection in monopolistic states

Common exam pattern: "An employer operates in a monopolistic state fund jurisdiction but also in Texas. The state fund provides only Coverage A. What coverage fills the Coverage B gap?" → Stop-gap coverage.

Texas is NOT a monopolistic state — Texas WC is provided by private insurers (or the state-created insurer of last resort, Texas Mutual). Stop-gap is relevant only when a Texas-based employer also has employees in OH, ND, WA, or WY.

Beyond the headline concepts, the exam tests several smaller but specific Texas WC items:

• Exclusive remedy: For subscribing employers, WC is the employee's exclusive remedy for workplace injuries. The employee cannot sue the employer in addition to collecting WC. This is the protection subscribers gain in exchange for paying premiums.
• Texas Mutual Insurance Company: The state-created mutual insurer of last resort for WC. Texas Mutual must accept any employer that can't get coverage in the standard market.
• Texas Department of Insurance — Division of Workers' Compensation (DWC): The regulatory body overseeing Texas WC. Handles disputes, sets impairment guides, and enforces compliance.
• Reporting requirements: Subscribers must report injuries to their carrier within specific timeframes. Failure to report can result in penalties.
• Subrogation: If a third party (not the employer) caused the injury, the WC carrier has subrogation rights to recover from that third party. Common scenario: employee injured in a work-related auto accident caused by another driver — WC pays the employee, then sues the at-fault driver.
• Independent contractors vs. employees: WC covers employees, not independent contractors. Texas law has specific tests (control, payment method, supplied tools, etc.) to distinguish the two. Misclassification is a common compliance issue.

Examples of how Workers' Comp shows up on the actual Texas P&C exam:

Pattern 1: Non-subscriber consequences

"In Texas, an employer chooses not to carry Workers' Compensation insurance (a non-subscriber). What is the primary legal consequence if an employee is injured on the job?"

→ The employer loses three common-law defenses: contributory negligence, assumption of risk, and the fellow-servant rule.

Pattern 2: Coverage A vs Coverage B distinction

"An employee sues her employer for a workplace injury that wasn't covered by WC because she was technically an independent contractor. Which coverage might pay her claim?"

→ Coverage B (Employers Liability), assuming the employer carries WC and the lawsuit isn't barred by exclusive remedy.

Pattern 3: IIBs calculation

"A worker reaches MMI with a 20% impairment rating. How long will IIBs be paid?"

→ 60 weeks (20 × 3).

Pattern 4: Stop-gap scenario

"A Texas-based employer expands operations into Ohio, a monopolistic state fund state. What coverage should they add to their existing policy to address the Coverage B gap in Ohio?"

→ Stop-gap coverage on either the WC policy or CGL.

Pattern 5: Exclusive remedy

"A subscribing Texas employer's employee is injured at work. The employee receives WC benefits and then files a lawsuit against the employer for negligence. What is the likely outcome?"

→ The lawsuit is barred by the exclusive remedy doctrine. The employee can collect WC benefits but cannot sue the employer in addition (with rare exceptions for intentional torts).

Workers' Comp doesn't exist in isolation — it intersects with several other topics on the exam:

• Auto insurance: An employee injured in a work-related auto accident may collect from both WC (medical, lost wages) and the at-fault driver's auto liability (pain and suffering, full damages). The WC carrier then has subrogation rights.
• Health insurance coordination: WC is the primary payer for work-related injuries. Health insurance won't pay claims that should be covered by WC.
• Commercial General Liability (CGL): CGL specifically excludes injuries to employees because that's WC's territory. Stop-gap coverage is an exception that bridges this exclusion.
• Independent contractor vs. employee determination: The same tests Texas uses for WC eligibility also apply to other employer obligations (unemployment insurance, payroll taxes, etc.).

The Workers' Comp section is a memorization-and-distinction game. The key facts to memorize:

• Three defenses lost by Texas non-subscribers (contributory negligence, assumption of risk, fellow-servant rule)
• Coverage A vs Coverage B distinction (statutory vs. tort-based)
• Income benefit acronyms (TIBs, IIBs, SIBs, LIBs) and the IIBs formula (impairment × 3 weeks)
• Monopolistic state fund states (OH, ND, WA, WY) and stop-gap coverage
• Texas Mutual as the insurer of last resort
• Exclusive remedy doctrine and its exceptions

Audio works well for this section because it's heavy on definitions and rules without much math. Listen during your commute, then quiz yourself on the specific numbers (104 weeks for TIBs, 75% AWW for death benefits, etc.).

LanePrep's Chapter 4 covers all of this material in audio format with chapter quizzes that drill the exact patterns above. 25 free practice questions include WC scenarios. If you've completed pre-licensing and need focused exam prep, try Chapter 1 free — full chapter, no signup required.