In lieu of direct payments pursuant to Chapter 2 of this division, any State agency may obtain by insurance from the State Compensation Insurance Fund, if the fund accepts the risk when the application for insurance is made, otherwise from any other insurer, hospitalization, medical treatment, and indemnity, including death benefits, on behalf of its employees and of their dependents for injury or death suffered from accident, irrespective of fault, occurring in the course of and arising out of the employment with such State agency, where the injury or death is not compensable under the provisions of Division 4 of this code.