Workers' Compensation - Insuring PEOs and Their Client/ Employers
Christopher J. Boggs, CPCU, ARM, ALCM
September 10, 2008
Professional employer organizations (PEOs) began their rise after the adoption of the Tax Equity and Fiscal Responsibility Act of 1982 cleared a path for the creation and expansion of such entities. Over 700 professional employer organizations operate in all 50 states. According to the National Association of Professional Employer Organizations, between two and three million employees work under a PEO arrangement and PEO's as an industry earned $61 billion in gross revenues in 2007 (gross revenues are the total payrolls plus the fees charged by the PEO).
PEO contracts are co-employment arrangements whereby the professional employer organization and the client with whom they contract both retain some right of control over the individual worker or workers collectively. Such relationship is wholly different than a leased employee or the use of a borrowed servant as detailed in the three previous articles. Leased employees and borrowed servants are under the absolute control (as defined by the prior articles) of the special employer. Co-employment vests responsibility and control with both parties to the contract.
The National Association of Professional Employer Organizations (NAPEO) explains these responsibilities in their Website as follows:
The PEO relationship involves a contractual allocation and sharing of employer responsibilities between the PEO and the client. This shared employment relationship is called co-employment.
As co-employers with their client companies, PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. More specifically, a PEO establishes a contractual relationship with its clients whereby the PEO:
• Co-employs workers at client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations.
• Reserves a right of direction and control of the employees.
• Shares or allocates with the client employer responsibilities in a manner consistent with maintaining the client's responsibility for its product or service.
• Pays wages and employment taxes of the employee out of its own accounts.
• Reports, collects and deposits employment taxes with state and federal authorities.
• Establishes and maintains an employment relationship with its employees that is intended to be long term and not temporary.
• Retains a right to hire, reassign and fire the employees.
When evaluating the employer role of either the PEO or the client, the facts and circumstances of each employer obligation should be examined separately, because neither party alone is responsible for performing all of the obligations of employment. Each party will be solely responsible for certain obligations of employment, while both parties will share responsibility for other obligations. When the facts and circumstances of a PEO arrangement are examined appropriately, both the PEO and the client will be found to be an employer for some purposes, but neither party will be found to be "the" employer for all purposes.
NCCI and PEO Arrangements
NCCI has continued to monitor the workers' compensation issues and problems created when employers choose to join a professional employer organization. A 2005 report printed in NCCI's Workers' Compensation Issues Report delineates and briefly discusses many of the continuing issues. A few of the problems/issues discussed in the NCCI article include:
• Experience Modification Calculations: Most states require the PEO to individually monitor and report the claims experience of each individual client. The purpose is to thwart the efforts of employers with bad experience to escape their problems by joining a PEO for a couple of years then coming back out and starting over. Since individual experience must be monitored and reported, the employer's experience mod will be correct based on its experience; they will not get a 1.0 when they leave the PEO unless that is what they have earned;
• The ability of executive officers to exclude themselves (if allowed by law); and/or the ability of sole proprietors or partners to include themselves (if allowed by law). The ability to include or exclude members of an LLC (based on the applicable state law);
• Problems that might arise if the employer/client hires an uninsured subcontractor. Is the PEO's workers' compensation carrier required to pay as the statutory employer?
• Problems that arise out of PEO's being insured in State Assigned Risk pools; and
• Are the proper endorsements in place? For example, NCCI states in this article that the Alternate Employer Endorsement is not intended for use in co-employment situations. However, without using this endorsement there is a problem when trying to effectuate and confirming the proper dovetailing of coverage between the employer/client and the PEO (this will be shown below).
The report from NCCI specifically lists and highlights more problems than those listed above.
Insuring PEO's
Four endorsements are available for use in co-employment situations (an additional form may be necessary depending on the jurisdiction as detailed below). Two are client-specific and two are designed to be attached to the PEO's policy. Contractual agreement between the PEO and the employer regarding which entity is responsible for providing workers' compensation benefits governs which endorsements are used.
Employer/Client is responsible for providing workers' compensation. When the employer/client is contractually responsible for providing the benefits, two endorsements dovetail to provide the necessary or required workers' compensation benefits:
• Labor Contractor Endorsement (WC 00 03 20 A). This endorsement is attached to the client's (the leasing employer's) policy. Attachment of this endorsement extends benefits to the leased employees from the employer's policy and essentially provides additional insured status to the scheduled PEO. The use of this endorsement is coupled with the…
• Labor Contractor Exclusion Endorsement (WC 00 03 21). Attached to the PEO's workers' compensation policy, this exclusionary endorsement excludes coverage for employees leased to the client(s) scheduled in the form. This endorsement is used when the client leases employees on an "other-than-short term" basis and such client is charged with providing the workers' compensation benefits.
PEO is responsible for providing workers' compensation protection. As above, two endorsements, one attached to the employer's/client's policy and the second to the PEO's, work in tandem to assure that coverages mesh as per the contractual agreement that the PEO will extend workers' compensation benefits to the workers.
• Employee Leasing Client Exclusion Endorsement (WC 00 03 22). Attach this endorsement to the employer's/client's workers' compensation policy to exclude the extension of workers' compensation benefits to employees leased on a long-term basis from the labor contractor (PEO) scheduled in the policy. Only used when the PEO is responsible for providing coverage. The employer/client must confirm that the PEO attaches the…
• Professional Employer Organization (PEO) Extension Endorsement (WC 00 03 20 B). Workers' compensation and employers' liability benefits extend exclusively from the PEO's when this endorsement is attached to the PEO's policy. This extension only applies to employees leased to the client(s) listed on the schedule.
• Alternate Employer Endorsement (WC 00 03 01 A). Although NCCI states that this endorsement is not properly used in co-employment situations and even the form itself does not contemplate its use in these relationships; if the insured is located in a state that has not approved the PEO Extension Endorsement discussed above, this may be the only way to extend coverage from the PEO's form to protect the employer/client. This endorsement is attached to the PEO's policy naming the employer/client as the alternate employer. The use of this form in co-employment contracts is not recommended and should be avoided if possible.
Workers' Compensation Policies for Employers in PEOs
As evidenced by the above discussion, it is absolutely essential that the employer/client have in place a workers' compensation policy even when the PEO is contractually providing coverage. Since both entities are legally employers and in fact are the "employers of record," such contractual arrangement does not preclude the necessity of coverage.
Exposure to a workers' compensation claim still exists if an uninsured subcontractor is hired, if there are employees hired outside of the leasing contract (temporary workers, etc.) or any of the other potential gaps in protection as studied, reported and monitored by NCCI. And while it may seem like a weak argument, without a workers' compensation policy in force, the employer/client has nothing to which these endorsements can attach attesting that coverage is extended from another party.
Lastly, if the PEO loses its coverage or goes out of business suddenly, the employer is in violation of the law until coverage can be replaced. Certainly many employers have received notice that the PEO with whom they were contracted is no longer in business. When I owned my agency I had a PEO (I bought it with that set up, I did not create it). I received a fax one evening stating that the PEO would cease to operate the next day; workers' compensation coverage had to be placed, immediately, and I became responsible for payroll administration and other functions inherent in human resources management with just a few hours notice.
Employers should carry the workers' compensation policy even if it must be set up using "If Any" payrolls. The cost is very low for the protection it provides. A central theme of risk management is "don't risk a lot for a little." The small premium may avoid big problems.
2010년 1월 14일 목요일
Borrowed Servant Doctrine Conclusion
Borrowed Servant Doctrine Conclusion
Christopher J. Boggs, CPCU, ARM, ALCM
September 8, 2008
There are only a few work/employment situations that may lead to or lend themselves to special employer and borrowed servant situations. While this may not be an all-inclusive list, following are the most common:
• Temporary staffing operations. The employee works for a temporary staffing company that "leases" that worker to other entities to fulfill short-term or maybe even long-term employment needs. This is not to be confused with an employee leasing operation such as a PEO; that is a wholly different arrangement with different risk management concerns and different solutions. The contract between the staffing firm and the employer may require the staffing firm to provide the workers' compensation coverage even though the leasing employer is, by all tests, the special employer.
• Property managers required by the property owner to extend workers' compensation protection to the employees actively managing the property.
• Employee hired by the direct employer to work exclusively on or at the special employer's location or job site. White v. Bethlehem Steel (US Court of Appeals decision in 2000) addressed this issue. The employer (C.J. Langenfelder & Son Inc) leased his equipment and employees to Bethlehem Steel. One of the employees had worked for Langenfelder for 26 years but had worked nearly exclusively at Bethlehem for that entire tenure. The employee was injured on the job; he collected the benefits due him from Langenfelder, but then sued Bethlehem Steel. The Court found that since Bethlehem met all the requirements, they were the special employer and he was a borrowed servant. With such a relationship, the injured party could not sue Bethlehem since workers' compensation is the sole remedy in the employer-employee relationship. Such a relationship could also result from an accounting firm having an employee that works exclusively for one client and, in fact, has a desk at the client's office and daily reports there without going to the employer's location; or a computer/software company that keeps an employee on-site on a full-time basis for a large client; etc.
• Contractual relationships between a general contractor and subcontractor. Indemnification and hold harmless requirements may result in the general contractor becoming a special employer, especially in third-party-over suits. As detailed in an earlier article (Workers' Compensation - Contractual Risk Transfer) the subcontractor or sub-subcontractor (and on down) could be held financially responsible for suits against a third party made by an injured employee, even if that employee received all the benefits due and did not sue the employer. Contractual relationships can potentially create a special employer exposure.
The Workers' Compensation Solution??
Primary employers may not be relieved of their duty to provide workers' compensation benefits to borrowed servant employees of a special employer. In fact, a contractual relationship may exist between the direct employer and the special employer specifically mandating that coverage be provided by the direct employer. The intention of this three-part borrowed servant series-in-a-series has been to spotlight the need for agents to discover the various employment relationships (be they overt or hidden in a contract) and offer a potential solution to the client and even the client's customer.
The Alternate Employer Endorsement (WC 00 03 01A) is designed to extend workers' compensation protection to the special employer's "borrowed servants." Attached to the direct employer's policy, the endorsement specifically names the special (putative) employer thus extending the required workers' compensation protection without the need of the putative employer to make any adjustment to their policy. If the putative (special) employer is the client, this should be the agent's goal. The direct employer's agent will likely recommend moving the coverage to the special employer. Regardless of the client and their position in this exchange, all parties need to be aware of and plan for the possibilities.
All four "borrowed servant" examples listed in the paragraphs above are eligible for the Alternate Employer Endorsement as per the endorsement instructions. However, these eligibility guidelines are only theoretical in nature; underwriting approval is not guaranteed, and it may not even be likely.
• Temporary staffing firms. Underwriters willing, from the outset, to provide coverage for a temporary staffing firm will likely understand the need for this coverage and agree to provide this endorsement to all clients under the contract. If, however, the underwriter is unwilling to name the special employer (the lessee) as an alternate employer, the special employer may need to attach the Multiple Coordinated Policy Endorsement (WC 00 03 23) to their workers' compensation policy. This endorsement extends benefits to the leased employees rather than having to depend on the staffing firm for coverage. Agents writing coverage for the special employer need to be aware of the exposure and the availability of this endorsement;
• Property management firms. Again, underwriters may see and understand the need for this extension and agree to provide the endorsement when requested by the property owner;
• Employees working almost exclusively on the property of another. Underwriters may not be willing to extend such coverage as they may not see the need. If there is a contract, agents may be able to convince the underwriter to meet the contractual requirement; and
• Contractual risk transfer. It is unlikely an underwriter will ever allow the use of this endorsement in a contractual situation; doing so would be akin to naming the upper tier contractor as an additional insured (but is not as broad in that it only provides a means to finance the suit not protect against it). But the unwillingness of the underwriter to give this endorsement, especially if the CGL underwriter has altered the definition of an "insured contract" (see "Work Comp And CGL Gaps Necessitate Employers' Liability Insurance"), may create a big out-of-pocket expense for the lower tier contractor. A lower tier contractor in an earlier article could have been out $2 million if the CGL redefined "insured contract."
If the underwriter will not extend protection, the special employer should be notified that their workers' compensation policy may be called upon to provide the required benefits due these borrowed servants. Likewise, agents whose clients may be considered the special employer need to advise them of the possibility that such protection may be required and that an accompanying additional premium may result (see "Workers' Comp - Audit Problems and Additional Premiums") from the additional employees.
Extra-Insurance (Other) Protection Provided by the Borrowed Servant Doctrine
Being considered a borrowed servant may extend unexpected protection to the worker and his direct employer apart from any workers' compensation concern or matter. Such shielding arises out of the sole remedy protection living in workers' compensation statutes.
Many if not most borrowed servant suits have little or nothing to do with workers' compensation coverage, per se, but deal rather with the injured party's rights to sue the person that caused their injury (the special employee) and that person's direct employer.
Essentially, if the person causing the injury is "doctrinally" judged to be a borrowed servant they are considered an employee of the special employer. As a "fellow employee" of the injured person they cannot be held personally liable for the injured person (provided they did not act egregiously or intentionally) because workers' compensation is the sole source for injury arising out of and in the course of employment, however caused.
Likewise, the direct employer of the borrowed servant cannot be held vicariously liable for the actions of its direct employee since that employee is under the control of another entity. The theory of respondeat superior (Latin for "let the master answer") applies to the special employer not the direct employer due to the finding of fact regarding who has control of the employee. Since the special "master" has already responded by paying workers' compensation benefits, the direct "master" has no need and cannot be compelled to contribute.
Any questions on this issue should be addressed with an attorney that specializes in employment law.
Conclusion
This ends the three-part mini-series on the "borrowed servant doctrine." The insurance issues created by these relationships and other legal ramifications must be uncovered and properly managed by the servicing agent.
The workers' compensation series is nearly complete with only a few articles remaining. The following commentary will address the issue of PEO's and workers' compensation protection - who protects whom and how?
Christopher J. Boggs, CPCU, ARM, ALCM
September 8, 2008
There are only a few work/employment situations that may lead to or lend themselves to special employer and borrowed servant situations. While this may not be an all-inclusive list, following are the most common:
• Temporary staffing operations. The employee works for a temporary staffing company that "leases" that worker to other entities to fulfill short-term or maybe even long-term employment needs. This is not to be confused with an employee leasing operation such as a PEO; that is a wholly different arrangement with different risk management concerns and different solutions. The contract between the staffing firm and the employer may require the staffing firm to provide the workers' compensation coverage even though the leasing employer is, by all tests, the special employer.
• Property managers required by the property owner to extend workers' compensation protection to the employees actively managing the property.
• Employee hired by the direct employer to work exclusively on or at the special employer's location or job site. White v. Bethlehem Steel (US Court of Appeals decision in 2000) addressed this issue. The employer (C.J. Langenfelder & Son Inc) leased his equipment and employees to Bethlehem Steel. One of the employees had worked for Langenfelder for 26 years but had worked nearly exclusively at Bethlehem for that entire tenure. The employee was injured on the job; he collected the benefits due him from Langenfelder, but then sued Bethlehem Steel. The Court found that since Bethlehem met all the requirements, they were the special employer and he was a borrowed servant. With such a relationship, the injured party could not sue Bethlehem since workers' compensation is the sole remedy in the employer-employee relationship. Such a relationship could also result from an accounting firm having an employee that works exclusively for one client and, in fact, has a desk at the client's office and daily reports there without going to the employer's location; or a computer/software company that keeps an employee on-site on a full-time basis for a large client; etc.
• Contractual relationships between a general contractor and subcontractor. Indemnification and hold harmless requirements may result in the general contractor becoming a special employer, especially in third-party-over suits. As detailed in an earlier article (Workers' Compensation - Contractual Risk Transfer) the subcontractor or sub-subcontractor (and on down) could be held financially responsible for suits against a third party made by an injured employee, even if that employee received all the benefits due and did not sue the employer. Contractual relationships can potentially create a special employer exposure.
The Workers' Compensation Solution??
Primary employers may not be relieved of their duty to provide workers' compensation benefits to borrowed servant employees of a special employer. In fact, a contractual relationship may exist between the direct employer and the special employer specifically mandating that coverage be provided by the direct employer. The intention of this three-part borrowed servant series-in-a-series has been to spotlight the need for agents to discover the various employment relationships (be they overt or hidden in a contract) and offer a potential solution to the client and even the client's customer.
The Alternate Employer Endorsement (WC 00 03 01A) is designed to extend workers' compensation protection to the special employer's "borrowed servants." Attached to the direct employer's policy, the endorsement specifically names the special (putative) employer thus extending the required workers' compensation protection without the need of the putative employer to make any adjustment to their policy. If the putative (special) employer is the client, this should be the agent's goal. The direct employer's agent will likely recommend moving the coverage to the special employer. Regardless of the client and their position in this exchange, all parties need to be aware of and plan for the possibilities.
All four "borrowed servant" examples listed in the paragraphs above are eligible for the Alternate Employer Endorsement as per the endorsement instructions. However, these eligibility guidelines are only theoretical in nature; underwriting approval is not guaranteed, and it may not even be likely.
• Temporary staffing firms. Underwriters willing, from the outset, to provide coverage for a temporary staffing firm will likely understand the need for this coverage and agree to provide this endorsement to all clients under the contract. If, however, the underwriter is unwilling to name the special employer (the lessee) as an alternate employer, the special employer may need to attach the Multiple Coordinated Policy Endorsement (WC 00 03 23) to their workers' compensation policy. This endorsement extends benefits to the leased employees rather than having to depend on the staffing firm for coverage. Agents writing coverage for the special employer need to be aware of the exposure and the availability of this endorsement;
• Property management firms. Again, underwriters may see and understand the need for this extension and agree to provide the endorsement when requested by the property owner;
• Employees working almost exclusively on the property of another. Underwriters may not be willing to extend such coverage as they may not see the need. If there is a contract, agents may be able to convince the underwriter to meet the contractual requirement; and
• Contractual risk transfer. It is unlikely an underwriter will ever allow the use of this endorsement in a contractual situation; doing so would be akin to naming the upper tier contractor as an additional insured (but is not as broad in that it only provides a means to finance the suit not protect against it). But the unwillingness of the underwriter to give this endorsement, especially if the CGL underwriter has altered the definition of an "insured contract" (see "Work Comp And CGL Gaps Necessitate Employers' Liability Insurance"), may create a big out-of-pocket expense for the lower tier contractor. A lower tier contractor in an earlier article could have been out $2 million if the CGL redefined "insured contract."
If the underwriter will not extend protection, the special employer should be notified that their workers' compensation policy may be called upon to provide the required benefits due these borrowed servants. Likewise, agents whose clients may be considered the special employer need to advise them of the possibility that such protection may be required and that an accompanying additional premium may result (see "Workers' Comp - Audit Problems and Additional Premiums") from the additional employees.
Extra-Insurance (Other) Protection Provided by the Borrowed Servant Doctrine
Being considered a borrowed servant may extend unexpected protection to the worker and his direct employer apart from any workers' compensation concern or matter. Such shielding arises out of the sole remedy protection living in workers' compensation statutes.
Many if not most borrowed servant suits have little or nothing to do with workers' compensation coverage, per se, but deal rather with the injured party's rights to sue the person that caused their injury (the special employee) and that person's direct employer.
Essentially, if the person causing the injury is "doctrinally" judged to be a borrowed servant they are considered an employee of the special employer. As a "fellow employee" of the injured person they cannot be held personally liable for the injured person (provided they did not act egregiously or intentionally) because workers' compensation is the sole source for injury arising out of and in the course of employment, however caused.
Likewise, the direct employer of the borrowed servant cannot be held vicariously liable for the actions of its direct employee since that employee is under the control of another entity. The theory of respondeat superior (Latin for "let the master answer") applies to the special employer not the direct employer due to the finding of fact regarding who has control of the employee. Since the special "master" has already responded by paying workers' compensation benefits, the direct "master" has no need and cannot be compelled to contribute.
Any questions on this issue should be addressed with an attorney that specializes in employment law.
Conclusion
This ends the three-part mini-series on the "borrowed servant doctrine." The insurance issues created by these relationships and other legal ramifications must be uncovered and properly managed by the servicing agent.
The workers' compensation series is nearly complete with only a few articles remaining. The following commentary will address the issue of PEO's and workers' compensation protection - who protects whom and how?
Borrowed Servant Doctrine - Part 2
Borrowed Servant Doctrine - Part 2
Christopher J. Boggs, CPCU, ARM, ALCM
September 4, 2008
Control and the right of control is the overriding and deciding factor when testing and analyzing the "borrowed servant doctrine." Does the "special employer" have the absolute right to control the actions of the worker? As stated in the prior commentary, control only over the work being done is not sufficient; before status as a special employer can be assigned, the right of control must also encompasses the manner in which the work is performed.
Classification as a "special employer" is the third means by which an employer-employee relationship can be created. Of the three, this is the most unique as it is not created by a direct contract of hire or even by a statutory requirement; this relationship and the responsibilities that accompany it are born almost solely out of the right of control.
Defining "Control"
Employer-employee relationships impose specific duties and responsibilities upon each party. Employers are charged with many duties, among these are providing a safe and healthy work environment, making sure the correct tools are available to complete the assigned tasks, confirming that employees are properly trained and assuring that funds are available to cover the medical costs and/or lost wages should an injury occur (as per relevant statute). Employees, likewise, owe specific responsibilities to their employer; these include the duty to do the job that is assigned to them and to do it to the best of their ability and with the best interest of their employer in mind.
Special employer situations under the "borrowed servant doctrine" are no different. Employer duty and employee responsibility are present, but such duties and responsibilities arise strictly from the right of control as has been repeatedly pointed out in the opening paragraphs.
Each governmental body with an interest in this relationship and the insurance industry for its own purposes apply specific tests when trying to establish whether a particular worker is protected under the "borrowed servant doctrine." All of these interested parties list the "right of control" as one factor in the list of tests to be applied; but "control" itself is not defined by the individual tests, its definition is drawn and applied from other sources. Following are the markers that evidence "control:"
• The entity or person controls the manner in which the work is performed. Controlled workers are taken step-by-step through the process with the person in control confirming or providing the necessary training to complete each step leading to the desired outcome;
• The place of performance is delineated by the entity or person with control;
• Time of performance is mandated. The worker is expected to show up at specified times and work a set number of hours (with breaks for rest and lunch). When such specific period is over, the worker is free to leave;
• Details of the performance are mandated by the entity in control. The necessary tools, supplies and work areas are provided by the person or entity in control. The finished product must meet the controlling entity's standards;
• The person supervising the worker is a direct employee of the entity or person that hired the worker; and
• The work is being done exclusively for the entity that hired the worker (although the employer may turn over the finished product to another person or entity). Essentially, the worker is benefiting only the employer's business operation.
Absent sufficient evidence to the contrary, the original (direct) employer is presumed to retain control. But once the weight of the evidence based on the markers above conclusively shifts control to the "special employer," then the remaining "borrowed servant doctrine" tests can be scrutinized to determine if a "doctrinal" employer-employee relationship exists.
Other Borrowed Servant Tests
States and the Federal government apply specific tests to determine if a particular worker qualifies as a "borrowed servant" and the employer as a "special employer." The majority of these tests revolve around the question of control. The insurance industry thanks to Lex Larson and his "Larson's Workers' Compensation," marry the right of control detailed above with the various other tests to conceive and produce a three-part test to determine a worker's status as a borrowed servant and the employer's status as that of a special employer. These tests are:
1. Has the employee made a contract of hire, express or implied, with the special employer? In essence, has the direct employer volunteered or directed the employee to work for the special employer and has the employee agreed to such assignment;
2. Is the work being done essentially that of the special employer (as discussed under the right of control); and
3. Does the special employer have the right to control the details of the work?
If all of three questions are answered in the affirmative, then the employer is almost certainly a special employer and the employee a borrowed servant. There are other tests not contemplated by Larson that may need to be or will be considered by the court to absolutely prove special employer and borrowed servant status; these include:
• Does the presumed special employer have the right to discharge the worker? If the borrowing employer - then that evidences a borrowed servant;
• Who has the obligation to pay the employee? If the employee is paid by the borrowing employer, more proof of "special employer" status;
• Did the direct employer terminate the relationship with the employee? If so, the new employer is the "employer of record" as there is no longer another employer in the picture;
• What is the course of dealings between the direct employer and the presumed special employer? Is there a contractual relationship or requirement? Employer-employee status can be created (potentially) by contract; and
• Is the lent employee a specialist? And does the presumed special employer have the skill or knowledge to supervise the manner in which the work is being performed? This is a "negative test;" if the borrowing employer does not have the ability or skill necessary, the lent worker will likely not be considered a borrowed servant since one cannot control what it does not understand and cannot do; thus the individual is not a putative employee but a specialist.
Combining and analyzing the right of control, Larson's three-prong test and the five other distinguishing test factors will produce as nearly as possible a definitive answer to the question of "special employer" and a resulting "borrowed servant." Special employers owe the same duties to their borrowed servants as they do to any direct employee. An employer-employee relationship is created that must be managed both from a human resources and a risk management angle.
Following
All three employer classifications have been defined as have the tests necessary to determine if an employer is a special employer with borrowed servants. The next article will delineate the most common employment circumstances that result in the presence or creation of a borrowed servant; how such exposures can be handled by the workers' compensation policy; and a word about legal protections that can be extended to borrowed employees and their direct employers.
Christopher J. Boggs, CPCU, ARM, ALCM
September 4, 2008
Control and the right of control is the overriding and deciding factor when testing and analyzing the "borrowed servant doctrine." Does the "special employer" have the absolute right to control the actions of the worker? As stated in the prior commentary, control only over the work being done is not sufficient; before status as a special employer can be assigned, the right of control must also encompasses the manner in which the work is performed.
Classification as a "special employer" is the third means by which an employer-employee relationship can be created. Of the three, this is the most unique as it is not created by a direct contract of hire or even by a statutory requirement; this relationship and the responsibilities that accompany it are born almost solely out of the right of control.
Defining "Control"
Employer-employee relationships impose specific duties and responsibilities upon each party. Employers are charged with many duties, among these are providing a safe and healthy work environment, making sure the correct tools are available to complete the assigned tasks, confirming that employees are properly trained and assuring that funds are available to cover the medical costs and/or lost wages should an injury occur (as per relevant statute). Employees, likewise, owe specific responsibilities to their employer; these include the duty to do the job that is assigned to them and to do it to the best of their ability and with the best interest of their employer in mind.
Special employer situations under the "borrowed servant doctrine" are no different. Employer duty and employee responsibility are present, but such duties and responsibilities arise strictly from the right of control as has been repeatedly pointed out in the opening paragraphs.
Each governmental body with an interest in this relationship and the insurance industry for its own purposes apply specific tests when trying to establish whether a particular worker is protected under the "borrowed servant doctrine." All of these interested parties list the "right of control" as one factor in the list of tests to be applied; but "control" itself is not defined by the individual tests, its definition is drawn and applied from other sources. Following are the markers that evidence "control:"
• The entity or person controls the manner in which the work is performed. Controlled workers are taken step-by-step through the process with the person in control confirming or providing the necessary training to complete each step leading to the desired outcome;
• The place of performance is delineated by the entity or person with control;
• Time of performance is mandated. The worker is expected to show up at specified times and work a set number of hours (with breaks for rest and lunch). When such specific period is over, the worker is free to leave;
• Details of the performance are mandated by the entity in control. The necessary tools, supplies and work areas are provided by the person or entity in control. The finished product must meet the controlling entity's standards;
• The person supervising the worker is a direct employee of the entity or person that hired the worker; and
• The work is being done exclusively for the entity that hired the worker (although the employer may turn over the finished product to another person or entity). Essentially, the worker is benefiting only the employer's business operation.
Absent sufficient evidence to the contrary, the original (direct) employer is presumed to retain control. But once the weight of the evidence based on the markers above conclusively shifts control to the "special employer," then the remaining "borrowed servant doctrine" tests can be scrutinized to determine if a "doctrinal" employer-employee relationship exists.
Other Borrowed Servant Tests
States and the Federal government apply specific tests to determine if a particular worker qualifies as a "borrowed servant" and the employer as a "special employer." The majority of these tests revolve around the question of control. The insurance industry thanks to Lex Larson and his "Larson's Workers' Compensation," marry the right of control detailed above with the various other tests to conceive and produce a three-part test to determine a worker's status as a borrowed servant and the employer's status as that of a special employer. These tests are:
1. Has the employee made a contract of hire, express or implied, with the special employer? In essence, has the direct employer volunteered or directed the employee to work for the special employer and has the employee agreed to such assignment;
2. Is the work being done essentially that of the special employer (as discussed under the right of control); and
3. Does the special employer have the right to control the details of the work?
If all of three questions are answered in the affirmative, then the employer is almost certainly a special employer and the employee a borrowed servant. There are other tests not contemplated by Larson that may need to be or will be considered by the court to absolutely prove special employer and borrowed servant status; these include:
• Does the presumed special employer have the right to discharge the worker? If the borrowing employer - then that evidences a borrowed servant;
• Who has the obligation to pay the employee? If the employee is paid by the borrowing employer, more proof of "special employer" status;
• Did the direct employer terminate the relationship with the employee? If so, the new employer is the "employer of record" as there is no longer another employer in the picture;
• What is the course of dealings between the direct employer and the presumed special employer? Is there a contractual relationship or requirement? Employer-employee status can be created (potentially) by contract; and
• Is the lent employee a specialist? And does the presumed special employer have the skill or knowledge to supervise the manner in which the work is being performed? This is a "negative test;" if the borrowing employer does not have the ability or skill necessary, the lent worker will likely not be considered a borrowed servant since one cannot control what it does not understand and cannot do; thus the individual is not a putative employee but a specialist.
Combining and analyzing the right of control, Larson's three-prong test and the five other distinguishing test factors will produce as nearly as possible a definitive answer to the question of "special employer" and a resulting "borrowed servant." Special employers owe the same duties to their borrowed servants as they do to any direct employee. An employer-employee relationship is created that must be managed both from a human resources and a risk management angle.
Following
All three employer classifications have been defined as have the tests necessary to determine if an employer is a special employer with borrowed servants. The next article will delineate the most common employment circumstances that result in the presence or creation of a borrowed servant; how such exposures can be handled by the workers' compensation policy; and a word about legal protections that can be extended to borrowed employees and their direct employers.
Workers' Compensation - The Borrowed Servant Doctrine Defines the Employer?
Workers' Compensation - The Borrowed Servant Doctrine Defines the Employer?
Christopher J. Boggs, CPCU, ARM, ALCM
September 2, 2008
"The vital test in determining whether a workman furnished by [the primary employer] is a servant of [the special employer] is whether they (the employee(s)) are subject to the "special employer's" control or right of control not only with regard to the work to be done but also with regard to the employee's manner of performing it." This paraphrase (changed to remove specificities) of the 1935 Pennsylvania Supreme Court's ruling in Venezia v. Philadelphia Electric Company has been the basis on which questions, suits and claims involving supposed borrowed servants has been answered and decided.
Workers' compensation coverage, as has been detailed, is to be the sole remedy for the injured employee and a protection against lawsuits for the employer (except in cases of egregious acts). Previous articles have defined who an "employee" is or may be; this and the next two commentaries will attempt to define who the "employer" is or may be - with a particular emphasis on the "borrowed servant doctrine."
Three "Employers"
Prior articles have inversely defined or delineated the employer by means of defining the "employee." Indirectly defining an employer can lead to misclassification of or simply missed employees leaving gaps in protection that could have been avoided if the relationship was recognized and properly managed up front. Employee-employer relationships presuppose certain duties and responsibilities upon each party; such a relationship can exist outside the usual and customarily understood context. Understanding how status as the employer can be created will allow the client and its agent the opportunity to manage the risk before the injury occurs. Employer status can be created in one of three ways:
• As a primary/direct or de facto employer;
• As a statutory/ de jure employer; or
• As a "special employer."
Primary and statutory employer statuses were inversely detailed in prior articles and are only highlighted in the following paragraphs. Status as a "special employer" is the focus of the two commentaries following; considerably more attention will be given to the creation and management of the "special employer" status.
Primary/Direct or De Facto Employer
Direct employment is the traditional and most common employer-employee relationship. Status as a direct or primary employer is generally created via a contract of hire. Such contract may either be a formal written contract or an understood contract that follows negotiations, the employer's offer to the worker of employment and an acceptance by the employee of the employment. All or nearly all direct employer-employee relationships share the same rights and operate in essentially the same manner (the following is not an all-inclusive list):
• The right to hire and fire any employee (as allowed by state law) is vested solely in the direct employer.
• Direct/primary employers exercise or have the right to exercise absolute control over their employee. Work hours, work methods and work location are all controlled by the direct/primary employer.
• Employees of direct employers generally do not or are not necessarily allowed to work for anyone other than the direct employer without the employer's express permission or at the employer's direction.
• Remuneration is paid by direct employers, whether a sole proprietor, partner, corporation or other entity, on a regularly scheduled basis via either a salary, commission, piecework basis or by some other means. This is usually the employee's sole source (or primary source) of individual income.
• If the employer provides employee benefits, direct employees are eligible to receive and can reasonably expect these benefits.
• Applicable taxes are withheld from the worker's paycheck.
• Employees of direct employers are generally eligible to receive state and/or Federally-mandated unemployment benefits if they do lose their job.
A de facto employer is an employer "in fact or in reality." Employees often referred to as independent contractors are "in fact" employees. Employers may try to get around or dodge federal and state employment laws, withholding requirement or the providing of benefits by classifying factual employees as independent contractors. The degree of control exercised by the employer (as delineated above) often influences the worker's classification as either a true independent contractor or a de facto employee.
IRS applies a much more lenient definition of independent contractor than does the insurance industry, particularly workers' compensation carriers. Not withholding taxes and operating under a separate entity name (with potentially a few other qualifications) may be all that is required for the IRS to consider a worker an independent contractor.
However, workers' compensation rules are more stringent regarding the true nature and classification of a particular worker. The higher the degree of control over the worker, the more likely he will be considered an employee rather than an independent contractor. "Control" is defined in the next article.
Direct and de facto employers are charged with providing workers' compensation benefits as prescribed by individual state law and discussed in previous articles. An employer's violation of such requirements can result in criminal charges, fines and penalties (varying by state). Employers that lend or lease their direct employees to another employer (the special employer) are generally not be relieved of their duty to provide workers' compensation coverage; this will depend on the contract if one exists. Knowing which direct employees remain the employer's responsibility allows better planning of the workers' compensation protection.
Statutory and De Jure Employers
Statutory or de jure employers are created by force of law. Two prior articles in this series - "Workers' Compensation - Who Is An Employee" and "Workers' Compensation - The General Contractor's Responsibility" - detailed the statutory relationships that create employer-employee relationships. De jure and statutory can be used nearly synonymously as part of this discussion; "de jure" is defined to mean "by right or according to the law." The employer is not the direct employer or even necessarily "related" to the statutory employee, but becomes the employer of record by a vote of the legislature and sometimes the findings of a court.
General contractors hiring uninsured subcontractors become the statutory or de jure employers of the uninsured subcontractor's employees and are thus legally responsible to provide or arrange for workers' compensation benefits to be paid to an injured worker. As detailed in the above articles, forty-four states codify this relationship.
Any worker injured while in the course and scope of employment for a statutory (de jure) employer must be extended the same protection and benefits as those owed to the employees of the direct employer. Indemnification and hold harmless agreements between a general contractor and a subcontractor can create a relationship that must be managed via endorsement to the workers' compensation policy.
Special Employer
Due to the complexity and detail necessary to adequately address the legal and coverage issues surrounding status as a "special employer," such discussion will be left for the next two posts to allow ample space and time to cover the aspects of exposure that arise out of the "borrowed servant doctrine." "Employment" situations that lend themselves to the possibility of this doctrine and a workers' compensation endorsement that can possibly be used to protect the direct employer in these circumstances will also be thrashed out in these posts.
Christopher J. Boggs, CPCU, ARM, ALCM
September 2, 2008
"The vital test in determining whether a workman furnished by [the primary employer] is a servant of [the special employer] is whether they (the employee(s)) are subject to the "special employer's" control or right of control not only with regard to the work to be done but also with regard to the employee's manner of performing it." This paraphrase (changed to remove specificities) of the 1935 Pennsylvania Supreme Court's ruling in Venezia v. Philadelphia Electric Company has been the basis on which questions, suits and claims involving supposed borrowed servants has been answered and decided.
Workers' compensation coverage, as has been detailed, is to be the sole remedy for the injured employee and a protection against lawsuits for the employer (except in cases of egregious acts). Previous articles have defined who an "employee" is or may be; this and the next two commentaries will attempt to define who the "employer" is or may be - with a particular emphasis on the "borrowed servant doctrine."
Three "Employers"
Prior articles have inversely defined or delineated the employer by means of defining the "employee." Indirectly defining an employer can lead to misclassification of or simply missed employees leaving gaps in protection that could have been avoided if the relationship was recognized and properly managed up front. Employee-employer relationships presuppose certain duties and responsibilities upon each party; such a relationship can exist outside the usual and customarily understood context. Understanding how status as the employer can be created will allow the client and its agent the opportunity to manage the risk before the injury occurs. Employer status can be created in one of three ways:
• As a primary/direct or de facto employer;
• As a statutory/ de jure employer; or
• As a "special employer."
Primary and statutory employer statuses were inversely detailed in prior articles and are only highlighted in the following paragraphs. Status as a "special employer" is the focus of the two commentaries following; considerably more attention will be given to the creation and management of the "special employer" status.
Primary/Direct or De Facto Employer
Direct employment is the traditional and most common employer-employee relationship. Status as a direct or primary employer is generally created via a contract of hire. Such contract may either be a formal written contract or an understood contract that follows negotiations, the employer's offer to the worker of employment and an acceptance by the employee of the employment. All or nearly all direct employer-employee relationships share the same rights and operate in essentially the same manner (the following is not an all-inclusive list):
• The right to hire and fire any employee (as allowed by state law) is vested solely in the direct employer.
• Direct/primary employers exercise or have the right to exercise absolute control over their employee. Work hours, work methods and work location are all controlled by the direct/primary employer.
• Employees of direct employers generally do not or are not necessarily allowed to work for anyone other than the direct employer without the employer's express permission or at the employer's direction.
• Remuneration is paid by direct employers, whether a sole proprietor, partner, corporation or other entity, on a regularly scheduled basis via either a salary, commission, piecework basis or by some other means. This is usually the employee's sole source (or primary source) of individual income.
• If the employer provides employee benefits, direct employees are eligible to receive and can reasonably expect these benefits.
• Applicable taxes are withheld from the worker's paycheck.
• Employees of direct employers are generally eligible to receive state and/or Federally-mandated unemployment benefits if they do lose their job.
A de facto employer is an employer "in fact or in reality." Employees often referred to as independent contractors are "in fact" employees. Employers may try to get around or dodge federal and state employment laws, withholding requirement or the providing of benefits by classifying factual employees as independent contractors. The degree of control exercised by the employer (as delineated above) often influences the worker's classification as either a true independent contractor or a de facto employee.
IRS applies a much more lenient definition of independent contractor than does the insurance industry, particularly workers' compensation carriers. Not withholding taxes and operating under a separate entity name (with potentially a few other qualifications) may be all that is required for the IRS to consider a worker an independent contractor.
However, workers' compensation rules are more stringent regarding the true nature and classification of a particular worker. The higher the degree of control over the worker, the more likely he will be considered an employee rather than an independent contractor. "Control" is defined in the next article.
Direct and de facto employers are charged with providing workers' compensation benefits as prescribed by individual state law and discussed in previous articles. An employer's violation of such requirements can result in criminal charges, fines and penalties (varying by state). Employers that lend or lease their direct employees to another employer (the special employer) are generally not be relieved of their duty to provide workers' compensation coverage; this will depend on the contract if one exists. Knowing which direct employees remain the employer's responsibility allows better planning of the workers' compensation protection.
Statutory and De Jure Employers
Statutory or de jure employers are created by force of law. Two prior articles in this series - "Workers' Compensation - Who Is An Employee" and "Workers' Compensation - The General Contractor's Responsibility" - detailed the statutory relationships that create employer-employee relationships. De jure and statutory can be used nearly synonymously as part of this discussion; "de jure" is defined to mean "by right or according to the law." The employer is not the direct employer or even necessarily "related" to the statutory employee, but becomes the employer of record by a vote of the legislature and sometimes the findings of a court.
General contractors hiring uninsured subcontractors become the statutory or de jure employers of the uninsured subcontractor's employees and are thus legally responsible to provide or arrange for workers' compensation benefits to be paid to an injured worker. As detailed in the above articles, forty-four states codify this relationship.
Any worker injured while in the course and scope of employment for a statutory (de jure) employer must be extended the same protection and benefits as those owed to the employees of the direct employer. Indemnification and hold harmless agreements between a general contractor and a subcontractor can create a relationship that must be managed via endorsement to the workers' compensation policy.
Special Employer
Due to the complexity and detail necessary to adequately address the legal and coverage issues surrounding status as a "special employer," such discussion will be left for the next two posts to allow ample space and time to cover the aspects of exposure that arise out of the "borrowed servant doctrine." "Employment" situations that lend themselves to the possibility of this doctrine and a workers' compensation endorsement that can possibly be used to protect the direct employer in these circumstances will also be thrashed out in these posts.
Employers' Liability Endorsements
Employers' Liability Endorsements
Christopher J. Boggs, CPCU, ARM, ALCM
August 29, 2008
Endorsements used to alter a few of the exclusions specific to employers' liability coverage were listed in the last post. These endorsements are detailed below. Each alters to some extent both the workers' compensation (Part One) and employers' liability (Part Two) sections. A description of each endorsement, including the intent and eligibility factors, will be presented, with each then being charted showing the applicable endorsement's effect on the workers' compensation coverage and/or the employers' liability protection.
Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06A): Classifying a worker as a longshoreman or harbor worker requires the application of two specific tests: the "situs" and "status" tests. USL&HW benefits are extended to employees that meet both requirements:
• Situs requires that the employment be on, above or below navigable waters and adjoining areas. But working around or over water does not in itself qualify an individual for the benefits prescribed by USL&HW Act law. To qualify for such coverage requires satisfying the "status" test.
• Status as a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships; or the maintenance, repair or dismantling of ships.
Unless both tests are satisfied, the employee is not a longshoreman or a harbor worker and is not eligible for the applicable benefits. An individual or group of employees working on a bridge above navigable waters do not necessarily qualify for nor require USL&HW protection. While they are working above navigable water, the employees do not meet the status test as they are not working with ships or water-going vessels.
Each state prescribes the benefits provided and must be listed for coverage to apply as for any other employee. USL&HW coverage does not apply to masters or crew members of vessels.
Nonappropriated Fund Instrumentalities Act Coverage Endorsement (WC 00 01 08A): Civilians working on US-based military bases are covered by this endorsement. This includes non-military personnel working in exchange stores, movie theaters and other such operations. This endorsement extends the same benefits prescribed under the USL&HW Act to these employees.
Defense Base Act Coverage Endorsement (WC 00 01 01A): The defense base act is like the nonappropriated funds instrumentality act in that it extends USL&HW benefits to cover civilian employees working on military bases; however there are some important differences.
• The defense base act covers civilian employees working in any capacity on military bases outside the continental United States. This extends to include Alaska and Hawaii;
• Covered operations include civilian employees of contractors or subcontractors engaged in public works projects with any US governmental agency outside the continental US (i.e. Iraq and Afghanistan);
• Includes civilian employees working on contracts approved and funded under the Foreign Assistance Act outside the continental US;
• Coverage extends to employees working for US employers providing welfare of similar services to members of the armed forces outside the continental US. This includes such operations as the USO and Red Cross; and
• Coverage under the defense base act applies to all civilian employees, not just US citizens.
To trigger coverage, the endorsement must contain a description of the work and the location of the work.
Outer Continental Shelf Lands Act Coverage Endorsement (WC 00 01 09A): "Outer continental shelf" are submerged lands that lie seaward of various states subject to US jurisdiction. USL&HW benefits are extended by describing the work and the endorsement must indicate in which state the location would be if the territorial boundaries extended to the outer continental shelf. This endorsement generally applies to employees engaged in the development, exploration or removal of natural resources (oil and gas) from the sea floor by use of a fixed platform.
Federal Coal Mine Health and Safety Act Coverage Endorsement (WC 00 01 02): Federal Black Lung workers' compensation benefits are provided in the states listed in this endorsement, even in monopolistic states, in support of the Federal Coal Mine Health and Safety Act. Benefits are specified by Federal law.
Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A): The oldest continuous operating workers' compensation act signed into law by President Taft in 1908 (See: "Workers' Compensation History: The Great Tradeoff!"). Coverage is for railroad employees engaged in interstate commerce.
Maritime Coverage Endorsement (WC 00 02 01A): This endorsement is used to extend workers' compensation coverage to employers required to provide maritime benefits under Admiralty Law, DHSA or the Jones Act to their employees but who do not have a Protection and Indemnity(P&I) policy or the P&I does not cover their entire operations. Coverage is triggered by describing the maritime operations that are to be insured by the endorsement which may include: limitations by size, ownership or name of the vessel; or limited by the names of waterways that will be used by the vessel.
Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03): This is like the Maritime Coverage Endorsement, however it is used only when workers' compensation and employers' liability coverage is not required as there are less than the minimum number of employees. Same as the voluntary compensation endorsement used for non-maritime employees. The endorsement extends workers' compensation and employers' liability protection. Employees are covered by naming or describing the vessel to which they are assigned.
Click here to see the chart of these endorsements and which part each addresses and changes.
Employers' Liability Endorsements
Christopher J. Boggs, CPCU, ARM, ALCM
August 29, 2008 Email This
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Endorsements used to alter a few of the exclusions specific to employers' liability coverage were listed in the last post. These endorsements are detailed below. Each alters to some extent both the workers' compensation (Part One) and employers' liability (Part Two) sections. A description of each endorsement, including the intent and eligibility factors, will be presented, with each then being charted showing the applicable endorsement's effect on the workers' compensation coverage and/or the employers' liability protection.
Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06A): Classifying a worker as a longshoreman or harbor worker requires the application of two specific tests: the "situs" and "status" tests. USL&HW benefits are extended to employees that meet both requirements:
• Situs requires that the employment be on, above or below navigable waters and adjoining areas. But working around or over water does not in itself qualify an individual for the benefits prescribed by USL&HW Act law. To qualify for such coverage requires satisfying the "status" test.
• Status as a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships; or the maintenance, repair or dismantling of ships.
Unless both tests are satisfied, the employee is not a longshoreman or a harbor worker and is not eligible for the applicable benefits. An individual or group of employees working on a bridge above navigable waters do not necessarily qualify for nor require USL&HW protection. While they are working above navigable water, the employees do not meet the status test as they are not working with ships or water-going vessels.
Each state prescribes the benefits provided and must be listed for coverage to apply as for any other employee. USL&HW coverage does not apply to masters or crew members of vessels.
Nonappropriated Fund Instrumentalities Act Coverage Endorsement (WC 00 01 08A): Civilians working on US-based military bases are covered by this endorsement. This includes non-military personnel working in exchange stores, movie theaters and other such operations. This endorsement extends the same benefits prescribed under the USL&HW Act to these employees.
Defense Base Act Coverage Endorsement (WC 00 01 01A): The defense base act is like the nonappropriated funds instrumentality act in that it extends USL&HW benefits to cover civilian employees working on military bases; however there are some important differences.
• The defense base act covers civilian employees working in any capacity on military bases outside the continental United States. This extends to include Alaska and Hawaii;
• Covered operations include civilian employees of contractors or subcontractors engaged in public works projects with any US governmental agency outside the continental US (i.e. Iraq and Afghanistan);
• Includes civilian employees working on contracts approved and funded under the Foreign Assistance Act outside the continental US;
• Coverage extends to employees working for US employers providing welfare of similar services to members of the armed forces outside the continental US. This includes such operations as the USO and Red Cross; and
• Coverage under the defense base act applies to all civilian employees, not just US citizens.
To trigger coverage, the endorsement must contain a description of the work and the location of the work.
Outer Continental Shelf Lands Act Coverage Endorsement (WC 00 01 09A): "Outer continental shelf" are submerged lands that lie seaward of various states subject to US jurisdiction. USL&HW benefits are extended by describing the work and the endorsement must indicate in which state the location would be if the territorial boundaries extended to the outer continental shelf. This endorsement generally applies to employees engaged in the development, exploration or removal of natural resources (oil and gas) from the sea floor by use of a fixed platform.
Federal Coal Mine Health and Safety Act Coverage Endorsement (WC 00 01 02): Federal Black Lung workers' compensation benefits are provided in the states listed in this endorsement, even in monopolistic states, in support of the Federal Coal Mine Health and Safety Act. Benefits are specified by Federal law.
Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A): The oldest continuous operating workers' compensation act signed into law by President Taft in 1908 (See: "Workers' Compensation History: The Great Tradeoff!"). Coverage is for railroad employees engaged in interstate commerce.
Maritime Coverage Endorsement (WC 00 02 01A): This endorsement is used to extend workers' compensation coverage to employers required to provide maritime benefits under Admiralty Law, DHSA or the Jones Act to their employees but who do not have a Protection and Indemnity(P&I) policy or the P&I does not cover their entire operations. Coverage is triggered by describing the maritime operations that are to be insured by the endorsement which may include: limitations by size, ownership or name of the vessel; or limited by the names of waterways that will be used by the vessel.
Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03): This is like the Maritime Coverage Endorsement, however it is used only when workers' compensation and employers' liability coverage is not required as there are less than the minimum number of employees. Same as the voluntary compensation endorsement used for non-maritime employees. The endorsement extends workers' compensation and employers' liability protection. Employees are covered by naming or describing the vessel to which they are assigned.
Click here to see the chart of these endorsements and which part each addresses and changes.
Christopher J. Boggs, CPCU, ARM, ALCM
August 29, 2008
Endorsements used to alter a few of the exclusions specific to employers' liability coverage were listed in the last post. These endorsements are detailed below. Each alters to some extent both the workers' compensation (Part One) and employers' liability (Part Two) sections. A description of each endorsement, including the intent and eligibility factors, will be presented, with each then being charted showing the applicable endorsement's effect on the workers' compensation coverage and/or the employers' liability protection.
Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06A): Classifying a worker as a longshoreman or harbor worker requires the application of two specific tests: the "situs" and "status" tests. USL&HW benefits are extended to employees that meet both requirements:
• Situs requires that the employment be on, above or below navigable waters and adjoining areas. But working around or over water does not in itself qualify an individual for the benefits prescribed by USL&HW Act law. To qualify for such coverage requires satisfying the "status" test.
• Status as a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships; or the maintenance, repair or dismantling of ships.
Unless both tests are satisfied, the employee is not a longshoreman or a harbor worker and is not eligible for the applicable benefits. An individual or group of employees working on a bridge above navigable waters do not necessarily qualify for nor require USL&HW protection. While they are working above navigable water, the employees do not meet the status test as they are not working with ships or water-going vessels.
Each state prescribes the benefits provided and must be listed for coverage to apply as for any other employee. USL&HW coverage does not apply to masters or crew members of vessels.
Nonappropriated Fund Instrumentalities Act Coverage Endorsement (WC 00 01 08A): Civilians working on US-based military bases are covered by this endorsement. This includes non-military personnel working in exchange stores, movie theaters and other such operations. This endorsement extends the same benefits prescribed under the USL&HW Act to these employees.
Defense Base Act Coverage Endorsement (WC 00 01 01A): The defense base act is like the nonappropriated funds instrumentality act in that it extends USL&HW benefits to cover civilian employees working on military bases; however there are some important differences.
• The defense base act covers civilian employees working in any capacity on military bases outside the continental United States. This extends to include Alaska and Hawaii;
• Covered operations include civilian employees of contractors or subcontractors engaged in public works projects with any US governmental agency outside the continental US (i.e. Iraq and Afghanistan);
• Includes civilian employees working on contracts approved and funded under the Foreign Assistance Act outside the continental US;
• Coverage extends to employees working for US employers providing welfare of similar services to members of the armed forces outside the continental US. This includes such operations as the USO and Red Cross; and
• Coverage under the defense base act applies to all civilian employees, not just US citizens.
To trigger coverage, the endorsement must contain a description of the work and the location of the work.
Outer Continental Shelf Lands Act Coverage Endorsement (WC 00 01 09A): "Outer continental shelf" are submerged lands that lie seaward of various states subject to US jurisdiction. USL&HW benefits are extended by describing the work and the endorsement must indicate in which state the location would be if the territorial boundaries extended to the outer continental shelf. This endorsement generally applies to employees engaged in the development, exploration or removal of natural resources (oil and gas) from the sea floor by use of a fixed platform.
Federal Coal Mine Health and Safety Act Coverage Endorsement (WC 00 01 02): Federal Black Lung workers' compensation benefits are provided in the states listed in this endorsement, even in monopolistic states, in support of the Federal Coal Mine Health and Safety Act. Benefits are specified by Federal law.
Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A): The oldest continuous operating workers' compensation act signed into law by President Taft in 1908 (See: "Workers' Compensation History: The Great Tradeoff!"). Coverage is for railroad employees engaged in interstate commerce.
Maritime Coverage Endorsement (WC 00 02 01A): This endorsement is used to extend workers' compensation coverage to employers required to provide maritime benefits under Admiralty Law, DHSA or the Jones Act to their employees but who do not have a Protection and Indemnity(P&I) policy or the P&I does not cover their entire operations. Coverage is triggered by describing the maritime operations that are to be insured by the endorsement which may include: limitations by size, ownership or name of the vessel; or limited by the names of waterways that will be used by the vessel.
Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03): This is like the Maritime Coverage Endorsement, however it is used only when workers' compensation and employers' liability coverage is not required as there are less than the minimum number of employees. Same as the voluntary compensation endorsement used for non-maritime employees. The endorsement extends workers' compensation and employers' liability protection. Employees are covered by naming or describing the vessel to which they are assigned.
Click here to see the chart of these endorsements and which part each addresses and changes.
Employers' Liability Endorsements
Christopher J. Boggs, CPCU, ARM, ALCM
August 29, 2008 Email This
Endorsements used to alter a few of the exclusions specific to employers' liability coverage were listed in the last post. These endorsements are detailed below. Each alters to some extent both the workers' compensation (Part One) and employers' liability (Part Two) sections. A description of each endorsement, including the intent and eligibility factors, will be presented, with each then being charted showing the applicable endorsement's effect on the workers' compensation coverage and/or the employers' liability protection.
Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06A): Classifying a worker as a longshoreman or harbor worker requires the application of two specific tests: the "situs" and "status" tests. USL&HW benefits are extended to employees that meet both requirements:
• Situs requires that the employment be on, above or below navigable waters and adjoining areas. But working around or over water does not in itself qualify an individual for the benefits prescribed by USL&HW Act law. To qualify for such coverage requires satisfying the "status" test.
• Status as a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships; or the maintenance, repair or dismantling of ships.
Unless both tests are satisfied, the employee is not a longshoreman or a harbor worker and is not eligible for the applicable benefits. An individual or group of employees working on a bridge above navigable waters do not necessarily qualify for nor require USL&HW protection. While they are working above navigable water, the employees do not meet the status test as they are not working with ships or water-going vessels.
Each state prescribes the benefits provided and must be listed for coverage to apply as for any other employee. USL&HW coverage does not apply to masters or crew members of vessels.
Nonappropriated Fund Instrumentalities Act Coverage Endorsement (WC 00 01 08A): Civilians working on US-based military bases are covered by this endorsement. This includes non-military personnel working in exchange stores, movie theaters and other such operations. This endorsement extends the same benefits prescribed under the USL&HW Act to these employees.
Defense Base Act Coverage Endorsement (WC 00 01 01A): The defense base act is like the nonappropriated funds instrumentality act in that it extends USL&HW benefits to cover civilian employees working on military bases; however there are some important differences.
• The defense base act covers civilian employees working in any capacity on military bases outside the continental United States. This extends to include Alaska and Hawaii;
• Covered operations include civilian employees of contractors or subcontractors engaged in public works projects with any US governmental agency outside the continental US (i.e. Iraq and Afghanistan);
• Includes civilian employees working on contracts approved and funded under the Foreign Assistance Act outside the continental US;
• Coverage extends to employees working for US employers providing welfare of similar services to members of the armed forces outside the continental US. This includes such operations as the USO and Red Cross; and
• Coverage under the defense base act applies to all civilian employees, not just US citizens.
To trigger coverage, the endorsement must contain a description of the work and the location of the work.
Outer Continental Shelf Lands Act Coverage Endorsement (WC 00 01 09A): "Outer continental shelf" are submerged lands that lie seaward of various states subject to US jurisdiction. USL&HW benefits are extended by describing the work and the endorsement must indicate in which state the location would be if the territorial boundaries extended to the outer continental shelf. This endorsement generally applies to employees engaged in the development, exploration or removal of natural resources (oil and gas) from the sea floor by use of a fixed platform.
Federal Coal Mine Health and Safety Act Coverage Endorsement (WC 00 01 02): Federal Black Lung workers' compensation benefits are provided in the states listed in this endorsement, even in monopolistic states, in support of the Federal Coal Mine Health and Safety Act. Benefits are specified by Federal law.
Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A): The oldest continuous operating workers' compensation act signed into law by President Taft in 1908 (See: "Workers' Compensation History: The Great Tradeoff!"). Coverage is for railroad employees engaged in interstate commerce.
Maritime Coverage Endorsement (WC 00 02 01A): This endorsement is used to extend workers' compensation coverage to employers required to provide maritime benefits under Admiralty Law, DHSA or the Jones Act to their employees but who do not have a Protection and Indemnity(P&I) policy or the P&I does not cover their entire operations. Coverage is triggered by describing the maritime operations that are to be insured by the endorsement which may include: limitations by size, ownership or name of the vessel; or limited by the names of waterways that will be used by the vessel.
Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03): This is like the Maritime Coverage Endorsement, however it is used only when workers' compensation and employers' liability coverage is not required as there are less than the minimum number of employees. Same as the voluntary compensation endorsement used for non-maritime employees. The endorsement extends workers' compensation and employers' liability protection. Employees are covered by naming or describing the vessel to which they are assigned.
Click here to see the chart of these endorsements and which part each addresses and changes.
Employers' Liability - Exclusions, Monopolistic States and Limits
Employers' Liability - Exclusions, Monopolistic States and Limits
Christopher J. Boggs, CPCU, ARM, ALCM
August 27, 2008
The National Council on Compensation Insurance's (NCCI) 1991 edition of the workers' compensation and employers' liability policy lists 12 specific exclusions applying to Section Two - Employers' Liability Insurance. Each of these exclusions is listed below and several are briefly explored in more detail. NCCI's employers' liability exclusions are (contains material copyrighted by the National Council on Compensation Insurance):
• Liability assumed under a contract. As detailed in a previous article, employers' liability for liability to an "outside party" assumed under contract is extended from the commercial general liability policy unless the definition of an "insured contract" has been altered by endorsement. If the CG 21 39 exclusionary endorsement has been attached, the employer's only source of protection is the workers' compensation policy (Part One) covering the medical costs and lost wages of the employee. Any "outside party" liability for an injury to an employee contractually transferred to the insured will have to be paid out of the insured employer's pocket.
• Punitive or exemplary damages arising from an employee employed in violation of law. Neither Part One - Workers' Compensation Insurance nor Part Two - Employers' Liability Insurance will cover the cost of any court-prescribed penalties or punishment arising out of an employee injured while illegally employed. The workers' compensation coverage part has to pay normal benefits, just not additional benefits imposed by the courts.
• Any bodily injury to an employee while knowingly employed by the insured in violation of the law. Part One - Workers' Compensation coverage will pay the statutorily required benefits (but no more) to any "employee" injured, even if such person is working in direct violation of the law with the full knowledge of the insured. However, the employers' liability part specifically excludes any coverage for illegal employees.
• Any obligation imposed by a workers' compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law. If the injury or loss is covered or supposed to be compensable under the workers' compensation policy, unemployment compensation policy or other such law it is not covered under employers' liability part.
• Bodily injury intentionally caused or aggravated by the insured. Covered, up to statutory limits, under the workers' compensation part but excluded in this coverage part.
• Bodily injury occurring outside the United States of America, its territories or possessions, and Canada unless the injured employee is a citizen or resident of the United States of America or Canada who is temporarily outside these countries. Coverage is excluded for foreign nationals working outside of the coverage territory. Domestic employees working outside the coverage territory on a temporary basis are covered.
• Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts or omissions. This is an Employment Practices Liability exposure covered under another policy type; besides, there is not necessarily any bodily injury arising out of these claims.
• Bodily injury to any person in work subject to the Longshore and Harbor Workers' Compensation Act (33 USC Sections 901-950), the Non-appropriated Fund Instrumentalities Act (5 USC Sections 8171-8173), the Outer Continental Shelf Lands Act (43 USC Sections 1331-1356), the Defense Base Act (42 USC Sections 1651-1654), the Federal Coal Mine Health and Safety Act of 1969 (30 USC Sections 901-942), any other federal workers' or workmen's compensation law or other federal occupational disease law, or any amendments to these laws. The policy can be endorsed as necessary to remove any or all five of these Federal Compensation Act exclusions if such exposure exists. The available endorsements are:
---Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement - WC 00 01 06A
---Nonappropriated Fund Instrumentalities Act Coverage Endorsement - WC 00 01 08A
---Outer Continental Shelf Lands Act Coverage Endorsement - WC 00 01 09A
---Defense Base Act Coverage Endorsement - WC 00 01 01A
---Federal Coal Mine Health and Safety Act Coverage Endorsement - WC 00 01 02
• Bodily injury to any person subject to the Federal Employers' Liability Act (45 USC Sections 51-60), any other federal laws obligating an employer to pay damages to an employee due to bodily injury arising out of or in the course of employment, or any amendments to those laws. The Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A) can be attached giving back employers' liability coverage for employees qualifying for protection under Federal liability laws.
• Bodily injury to a master or a member of the crew of any vessel. Two endorsements are available allowing the insured to provide coverage for employees subject to the provisions of maritime law. These endorsements are:
---Maritime Coverage Endorsement (WC 00 02 01A) - This endorsement is used if the insured has no protection and indemnity (P&I) policy.
---Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03) - This endorsement is used to voluntarily extend coverage to employees not normally required to be protected by a workers' compensation policy.
• Fines or penalties imposed for violation of federal or state law. Neither the workers' compensation coverage part nor the employers' liability coverage section will pay any penalties assessed against the insured for violation of laws. Example violations include fines imposed by OSHA or other regulatory bodies for failure to provide a safe work environment or provide and/or require the use of personal protective equipment. These costs will be borne solely by the employer.
• Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act (29 USC Sections 1801-1872) and under any other federal law awarding damages for violation of those laws or regulations issued thereunder, and any amendments to those laws. As above, there is no coverage for employment or employment conditions in violation of applicable laws.
The endorsements listed above will be detailed in the next commentary.
Monopolistic States
Only four monopolistic states are still in operation: North Dakota, Ohio, Washington and Wyoming. Insureds with on-going operations in one of these states purchase workers' compensation protection from the state but must find an alternate means to secure employers' liability coverage.
Three methods are available to fill this protection gap to which employers operating in monopolistic states are subject.
• Stand-alone employers' liability coverage. Employers domiciled and operating nearly exclusively in a monopolistic state can purchase a stand-alone employers' liability policy from a private insurer. The state funds do not offer this protection.
• Endorsement to the workers' compensation and employers' liability insurance policy. WC 00 03 03C can be attached to an employer's policy operating in a non-monopolistic state with employees working in a monopolistic state and subject to that state's laws. The employer buys a separate workers' compensation policy covering just the employees in the monopolistic state, and then they attach this endorsement to their domicile-state policy, listing the monopolistic states in which employees are involved in on-going operations.
• Endorsed onto the commercial general liability policy. Employers domiciled in non-monopolistic states but with employees in monopolistic states may choose to endorse the commercial general liability policy to extend employers' liability benefits to cover employees working in monopolistic states. As above, the workers' compensation policy is purchased from the state and the commercial general liability policy is endorsed to extend employers' liability protection. Each monopolistic state requires a state-specific endorsement. Some underwriters are unwilling to extend this protection via the CGL (especially if they are unwilling to allow the umbrella to sit over the employers' liability section).
Regardless of which method is chosen, extending employers' liability coverage to employees in monopolistic states is very important. As has been discussed in this mini-series, employers' liability protection fills many gaps between the workers' compensation policy and the protection offered by the commercial general liability policy.
A Word About Limits
Standard limits offered by the employers' liability policy ($100,000 Each Occurrence Bodily Injury, $100,000 Each Occurrence for Employee Disease with a $500,000 Employee Disease Aggregate) are just too low. Remember, this coverage serves to fill the gaps between the workers' compensation policy and the commercial general liability policy.
Workers' compensation coverage is limited only by statute and the commercial general liability protection is generally no less than $1 million per occurrence (sometime higher); so why should the limits of the policy that fills this gap be so low?
Increasing employers' liability coverage limits is relatively inexpensive. Five hundred thousand dollar limits across the board ($500,000 / $500,000 / $500,000) increases the entire policy premium about 2 percent (varies depending on the carrier), and jumping the coverage to $1 million / $1 million / $1 million increases the premium by only around 3 percent over standard. And anytime the umbrella carrier is willing to extend benefits over the employers' liability coverage that opportunity should be taken.
Conclusion
Employers' liability is an important protection the shields employers from losses that would otherwise be excluded. This is the last of the articles on employers' liability coverage. The next article, as stated earlier, will detail some of the endorsements listed above.
Christopher J. Boggs, CPCU, ARM, ALCM
August 27, 2008
The National Council on Compensation Insurance's (NCCI) 1991 edition of the workers' compensation and employers' liability policy lists 12 specific exclusions applying to Section Two - Employers' Liability Insurance. Each of these exclusions is listed below and several are briefly explored in more detail. NCCI's employers' liability exclusions are (contains material copyrighted by the National Council on Compensation Insurance):
• Liability assumed under a contract. As detailed in a previous article, employers' liability for liability to an "outside party" assumed under contract is extended from the commercial general liability policy unless the definition of an "insured contract" has been altered by endorsement. If the CG 21 39 exclusionary endorsement has been attached, the employer's only source of protection is the workers' compensation policy (Part One) covering the medical costs and lost wages of the employee. Any "outside party" liability for an injury to an employee contractually transferred to the insured will have to be paid out of the insured employer's pocket.
• Punitive or exemplary damages arising from an employee employed in violation of law. Neither Part One - Workers' Compensation Insurance nor Part Two - Employers' Liability Insurance will cover the cost of any court-prescribed penalties or punishment arising out of an employee injured while illegally employed. The workers' compensation coverage part has to pay normal benefits, just not additional benefits imposed by the courts.
• Any bodily injury to an employee while knowingly employed by the insured in violation of the law. Part One - Workers' Compensation coverage will pay the statutorily required benefits (but no more) to any "employee" injured, even if such person is working in direct violation of the law with the full knowledge of the insured. However, the employers' liability part specifically excludes any coverage for illegal employees.
• Any obligation imposed by a workers' compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law. If the injury or loss is covered or supposed to be compensable under the workers' compensation policy, unemployment compensation policy or other such law it is not covered under employers' liability part.
• Bodily injury intentionally caused or aggravated by the insured. Covered, up to statutory limits, under the workers' compensation part but excluded in this coverage part.
• Bodily injury occurring outside the United States of America, its territories or possessions, and Canada unless the injured employee is a citizen or resident of the United States of America or Canada who is temporarily outside these countries. Coverage is excluded for foreign nationals working outside of the coverage territory. Domestic employees working outside the coverage territory on a temporary basis are covered.
• Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts or omissions. This is an Employment Practices Liability exposure covered under another policy type; besides, there is not necessarily any bodily injury arising out of these claims.
• Bodily injury to any person in work subject to the Longshore and Harbor Workers' Compensation Act (33 USC Sections 901-950), the Non-appropriated Fund Instrumentalities Act (5 USC Sections 8171-8173), the Outer Continental Shelf Lands Act (43 USC Sections 1331-1356), the Defense Base Act (42 USC Sections 1651-1654), the Federal Coal Mine Health and Safety Act of 1969 (30 USC Sections 901-942), any other federal workers' or workmen's compensation law or other federal occupational disease law, or any amendments to these laws. The policy can be endorsed as necessary to remove any or all five of these Federal Compensation Act exclusions if such exposure exists. The available endorsements are:
---Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement - WC 00 01 06A
---Nonappropriated Fund Instrumentalities Act Coverage Endorsement - WC 00 01 08A
---Outer Continental Shelf Lands Act Coverage Endorsement - WC 00 01 09A
---Defense Base Act Coverage Endorsement - WC 00 01 01A
---Federal Coal Mine Health and Safety Act Coverage Endorsement - WC 00 01 02
• Bodily injury to any person subject to the Federal Employers' Liability Act (45 USC Sections 51-60), any other federal laws obligating an employer to pay damages to an employee due to bodily injury arising out of or in the course of employment, or any amendments to those laws. The Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A) can be attached giving back employers' liability coverage for employees qualifying for protection under Federal liability laws.
• Bodily injury to a master or a member of the crew of any vessel. Two endorsements are available allowing the insured to provide coverage for employees subject to the provisions of maritime law. These endorsements are:
---Maritime Coverage Endorsement (WC 00 02 01A) - This endorsement is used if the insured has no protection and indemnity (P&I) policy.
---Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03) - This endorsement is used to voluntarily extend coverage to employees not normally required to be protected by a workers' compensation policy.
• Fines or penalties imposed for violation of federal or state law. Neither the workers' compensation coverage part nor the employers' liability coverage section will pay any penalties assessed against the insured for violation of laws. Example violations include fines imposed by OSHA or other regulatory bodies for failure to provide a safe work environment or provide and/or require the use of personal protective equipment. These costs will be borne solely by the employer.
• Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act (29 USC Sections 1801-1872) and under any other federal law awarding damages for violation of those laws or regulations issued thereunder, and any amendments to those laws. As above, there is no coverage for employment or employment conditions in violation of applicable laws.
The endorsements listed above will be detailed in the next commentary.
Monopolistic States
Only four monopolistic states are still in operation: North Dakota, Ohio, Washington and Wyoming. Insureds with on-going operations in one of these states purchase workers' compensation protection from the state but must find an alternate means to secure employers' liability coverage.
Three methods are available to fill this protection gap to which employers operating in monopolistic states are subject.
• Stand-alone employers' liability coverage. Employers domiciled and operating nearly exclusively in a monopolistic state can purchase a stand-alone employers' liability policy from a private insurer. The state funds do not offer this protection.
• Endorsement to the workers' compensation and employers' liability insurance policy. WC 00 03 03C can be attached to an employer's policy operating in a non-monopolistic state with employees working in a monopolistic state and subject to that state's laws. The employer buys a separate workers' compensation policy covering just the employees in the monopolistic state, and then they attach this endorsement to their domicile-state policy, listing the monopolistic states in which employees are involved in on-going operations.
• Endorsed onto the commercial general liability policy. Employers domiciled in non-monopolistic states but with employees in monopolistic states may choose to endorse the commercial general liability policy to extend employers' liability benefits to cover employees working in monopolistic states. As above, the workers' compensation policy is purchased from the state and the commercial general liability policy is endorsed to extend employers' liability protection. Each monopolistic state requires a state-specific endorsement. Some underwriters are unwilling to extend this protection via the CGL (especially if they are unwilling to allow the umbrella to sit over the employers' liability section).
Regardless of which method is chosen, extending employers' liability coverage to employees in monopolistic states is very important. As has been discussed in this mini-series, employers' liability protection fills many gaps between the workers' compensation policy and the protection offered by the commercial general liability policy.
A Word About Limits
Standard limits offered by the employers' liability policy ($100,000 Each Occurrence Bodily Injury, $100,000 Each Occurrence for Employee Disease with a $500,000 Employee Disease Aggregate) are just too low. Remember, this coverage serves to fill the gaps between the workers' compensation policy and the commercial general liability policy.
Workers' compensation coverage is limited only by statute and the commercial general liability protection is generally no less than $1 million per occurrence (sometime higher); so why should the limits of the policy that fills this gap be so low?
Increasing employers' liability coverage limits is relatively inexpensive. Five hundred thousand dollar limits across the board ($500,000 / $500,000 / $500,000) increases the entire policy premium about 2 percent (varies depending on the carrier), and jumping the coverage to $1 million / $1 million / $1 million increases the premium by only around 3 percent over standard. And anytime the umbrella carrier is willing to extend benefits over the employers' liability coverage that opportunity should be taken.
Conclusion
Employers' liability is an important protection the shields employers from losses that would otherwise be excluded. This is the last of the articles on employers' liability coverage. The next article, as stated earlier, will detail some of the endorsements listed above.
Employers' Liability Coverages
Employers' Liability Coverages
Christopher J. Boggs, CPCU, ARM, ALCM
August 25, 2008
Employers' liability policy wording specifies four types of claims to which this coverage part responds:
1. Third-party-over actions;
2. Loss of consortium (loss of family service);
3. Consequential bodily injury; and
4. Dual Capacity actions.
Each of these are detailed in the following paragraphs.
Third-Party-Over
While in college I spent one summer working for a manufacturing operation. There I learned a number of new skills and a lot about myself including why I was going to college. During my tenure I witnessed a workers' compensation claim arising out of a 15-year-old getting his hand caught in a large crimping machine working on the machine next to mine (yes, there are a number of things wrong with the situation).
He developed a rhythm of putting in the blank, activating the machine and removing the finished piece. Finished parts were coming out very quickly; but somewhere along the way his timing was thrown off and he put the blank in at precise moment he activated the machine (nope, no safety problems here).
Thousands of pounds of pressure per square inch landed on this kid's hand; but because the machine's motion was unable to make a full resolution it did not release, it trapped my co-worker's hand in the machine and would not let go. The machine was not equipped with an emergency release mechanism.
This kid is screaming and crying (and I'm not ashamed to say I probably would have done the same, even as a 19-year-old), I'm standing there with no idea what to do - I don't want to pull him, the machine is far stronger than I and everyone else is just kind of frozen. Finally my friend helplessly caught in the machine musters enough clarity to reach up and turn the machine off; at which point he is released. I catch him as he falls; he gets to his feet and takes off running with no clear destination. An older, more experienced worker grabs him and puts a tourniquet around his wrist to stop the bleeding.
At the end of this ordeal a 15-year-old kid had two of his middle fingers removed because they were crushed beyond repair.
If there were sufficient grounds to prove negligence, he could have filed a products liability claim against the machine's manufacturer claiming, among other things, insufficient safety in the machine's design and lack of adequate guards.
A suit never materialized, but had it occurred, the equipment manufacturer would have discovered that the guards designed to protect the worker had been removed to speed up production (a fact I learned later). With this information, the manufacturer could have sued the employer for acting improperly.
This is an example of a third-party-over suit where an employer is sued by an "other party" as a direct result of an injury to an employee. Any liability to the "other party" would be excluded from the workers' compensation coverage as discussed previously; and coverage would also be excluded by the two commercial general liability policy exclusions.
Protection and payment can only be found in the employers' liability policy.
Loss of Consortium
Depending on the seriousness of the employee's injury, the family may suffer in ways that aren't compensated or even compensable by the workers' compensation coverage part. These include additional costs to hire outside help to provide the services that were provided by the injured employee, the loss of companionship (which does include sexual relations) and, in some jurisdictions, claims for emotional injury.
For example, additional expenses are incurred because a lawn service has to be hired to care for the injured employee's yard since he can no longer perform that task. A percentage of the lost wages are paid by the workers' compensation policy, but additional expenses are not necessarily contemplated by the workers' compensation policy and must be paid by the employers' liability section.
Consequential Bodily Injury
A work-related disease may be the best example of consequential bodily injury. If the employee were to contract a work-related infectious disease that was subsequently spread to another member of the immediate family, this would be a prime example of consequential bodily injury covered by the employers' liability policy.
To qualify for coverage, the consequential bodily injury must be the direct result of a work-related injury suffered by the employee.
Dual Capacity
Employers may have business-related contact with their employees outside the employee-employer relationship. These additional relationships can be in the form of a product supplier, service provider or as the owner of a premises. Such dual persona creating this increased contact may subject the employer to liability for injury to an employee that may occur at work but one which does not necessarily arise out of and in the course and scope of employment.
Dual persona relationships create employer obligations to the worker independent of those imposed on it strictly as the employer. In essence, the exclusivity of workers' compensation protection is waived in situations where the employer could be liable to the general public for the same injury.
My father worked as a plant electrician for a soft drink bottling company in the mid-1960's. As a "perk" the employees were allowed to take the ready-to-ship bottles directly off the line to drink while at work (they were ice cold and fresh, plus real sugar was still used back then).
Had my dad been poisoned by a contaminated drink ready for shipment to the general public, he, or his heirs, could have sued under the dual capacity doctrine to recover amounts outside the benefits payable under the workers' compensation coverage. In such an instance, the employer ceases being the employer and steps into a second role (a second persona) as a product supplier. The logic is, had this drink gone out to the general public, the supplier would have been faced with a products liability suit; and since the general public could have been exposed to the same injury, the injured employee can access the same redress for injuries suffered as any member of the general public.
Health care workers can also be subject to dual capacity relationships. Doctors and nurses injured in the course of employment may be cared for at the medical facility in which they work. Once the hospital or medical facility undertakes to provide care available to the general public, they have taken on a second persona (that of service provider) and potentially subjected themselves to the dual capacity doctrine.
Conclusion
Many commentaries state that coverage extended from the employers' liability coverage is not limited to the types of claims highlighted above. The next post, which will be the last on employers' liability, will highlight the exclusions to the policy which may indicate what, if any, additional claim situations may be covered by the employers' liability policy. Additionally, the article will discuss employers' liability in monopolistic states and will finish up with a discussion about employers' liability limits.
Christopher J. Boggs, CPCU, ARM, ALCM
August 25, 2008
Employers' liability policy wording specifies four types of claims to which this coverage part responds:
1. Third-party-over actions;
2. Loss of consortium (loss of family service);
3. Consequential bodily injury; and
4. Dual Capacity actions.
Each of these are detailed in the following paragraphs.
Third-Party-Over
While in college I spent one summer working for a manufacturing operation. There I learned a number of new skills and a lot about myself including why I was going to college. During my tenure I witnessed a workers' compensation claim arising out of a 15-year-old getting his hand caught in a large crimping machine working on the machine next to mine (yes, there are a number of things wrong with the situation).
He developed a rhythm of putting in the blank, activating the machine and removing the finished piece. Finished parts were coming out very quickly; but somewhere along the way his timing was thrown off and he put the blank in at precise moment he activated the machine (nope, no safety problems here).
Thousands of pounds of pressure per square inch landed on this kid's hand; but because the machine's motion was unable to make a full resolution it did not release, it trapped my co-worker's hand in the machine and would not let go. The machine was not equipped with an emergency release mechanism.
This kid is screaming and crying (and I'm not ashamed to say I probably would have done the same, even as a 19-year-old), I'm standing there with no idea what to do - I don't want to pull him, the machine is far stronger than I and everyone else is just kind of frozen. Finally my friend helplessly caught in the machine musters enough clarity to reach up and turn the machine off; at which point he is released. I catch him as he falls; he gets to his feet and takes off running with no clear destination. An older, more experienced worker grabs him and puts a tourniquet around his wrist to stop the bleeding.
At the end of this ordeal a 15-year-old kid had two of his middle fingers removed because they were crushed beyond repair.
If there were sufficient grounds to prove negligence, he could have filed a products liability claim against the machine's manufacturer claiming, among other things, insufficient safety in the machine's design and lack of adequate guards.
A suit never materialized, but had it occurred, the equipment manufacturer would have discovered that the guards designed to protect the worker had been removed to speed up production (a fact I learned later). With this information, the manufacturer could have sued the employer for acting improperly.
This is an example of a third-party-over suit where an employer is sued by an "other party" as a direct result of an injury to an employee. Any liability to the "other party" would be excluded from the workers' compensation coverage as discussed previously; and coverage would also be excluded by the two commercial general liability policy exclusions.
Protection and payment can only be found in the employers' liability policy.
Loss of Consortium
Depending on the seriousness of the employee's injury, the family may suffer in ways that aren't compensated or even compensable by the workers' compensation coverage part. These include additional costs to hire outside help to provide the services that were provided by the injured employee, the loss of companionship (which does include sexual relations) and, in some jurisdictions, claims for emotional injury.
For example, additional expenses are incurred because a lawn service has to be hired to care for the injured employee's yard since he can no longer perform that task. A percentage of the lost wages are paid by the workers' compensation policy, but additional expenses are not necessarily contemplated by the workers' compensation policy and must be paid by the employers' liability section.
Consequential Bodily Injury
A work-related disease may be the best example of consequential bodily injury. If the employee were to contract a work-related infectious disease that was subsequently spread to another member of the immediate family, this would be a prime example of consequential bodily injury covered by the employers' liability policy.
To qualify for coverage, the consequential bodily injury must be the direct result of a work-related injury suffered by the employee.
Dual Capacity
Employers may have business-related contact with their employees outside the employee-employer relationship. These additional relationships can be in the form of a product supplier, service provider or as the owner of a premises. Such dual persona creating this increased contact may subject the employer to liability for injury to an employee that may occur at work but one which does not necessarily arise out of and in the course and scope of employment.
Dual persona relationships create employer obligations to the worker independent of those imposed on it strictly as the employer. In essence, the exclusivity of workers' compensation protection is waived in situations where the employer could be liable to the general public for the same injury.
My father worked as a plant electrician for a soft drink bottling company in the mid-1960's. As a "perk" the employees were allowed to take the ready-to-ship bottles directly off the line to drink while at work (they were ice cold and fresh, plus real sugar was still used back then).
Had my dad been poisoned by a contaminated drink ready for shipment to the general public, he, or his heirs, could have sued under the dual capacity doctrine to recover amounts outside the benefits payable under the workers' compensation coverage. In such an instance, the employer ceases being the employer and steps into a second role (a second persona) as a product supplier. The logic is, had this drink gone out to the general public, the supplier would have been faced with a products liability suit; and since the general public could have been exposed to the same injury, the injured employee can access the same redress for injuries suffered as any member of the general public.
Health care workers can also be subject to dual capacity relationships. Doctors and nurses injured in the course of employment may be cared for at the medical facility in which they work. Once the hospital or medical facility undertakes to provide care available to the general public, they have taken on a second persona (that of service provider) and potentially subjected themselves to the dual capacity doctrine.
Conclusion
Many commentaries state that coverage extended from the employers' liability coverage is not limited to the types of claims highlighted above. The next post, which will be the last on employers' liability, will highlight the exclusions to the policy which may indicate what, if any, additional claim situations may be covered by the employers' liability policy. Additionally, the article will discuss employers' liability in monopolistic states and will finish up with a discussion about employers' liability limits.
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