Let's look at a few real life examples.
By LeRoy Utschig, CPCU, CLU, ARM
Employers liability automatically comes with every workers compensation contract issued in the non-monopolistic fund states. There is no charge for it, and it is seldom used to pay a loss. However, we will show some of the situations in which employers liability might be called upon to respond for injuries to a worker. The purpose of employers liability is to cover worker injuries that might not be compensable under a given state's workers compensation law or code.
Let's look at a few real life examples.
In the early 1970s, a Texas contractor did not have a lot of work. So, in order to have something for his secretary to do, he had her wash the windows on his house. She was injured while washing the windows. The contractor submitted a notice of loss to his insurer. After a couple of weeks, the insured was notified that the secretary's injury was not compensable under the Texas Workers Compensation Act. At the time of the injury, the secretary was doing the work of a domestic, and domestics are not covered under Texas workers compensation regulations. Therefore, the Texas Workers Compensation Commission told the insurer to deny the claim. The insured had coverage, but the secretary had not sustained a compensable injury.
In another scenario, an Indiana farmer had hired several men to help with the spring planting. At the end of the farmer's half-mile-long field of level black dirt, there was a large drainage ditch. One of the tractor drivers was not watching where he was driving. He looked up just in time to see the ditch. Rather than stepping on the clutch and hitting the brakes, he tried to turn to avoid the ditch. But, his efforts to turn came too late. As the tractor was partially turned, one of the rear wheels stayed on the top edge of the ditch while the other wheel dropped down into the ditch throwing the farmhand off as the tractor tipped over. The farmhand fell in front of the cultivator being pulled by the tractor. The end of the cultivator rolled over him before he was clear of the piece of equipment. A broken hip, ripped shoulder, and torn ligaments were some of his injuries.
Lucky to be alive, he was taken to a hospital emergency room where they addressed his bruises, cuts, broken hip, torn ligaments and broken shoulder. The injured man wanted the medical bills paid and also wanted something for his pain and suffering. Farm labor is excluded from coverage under the Indiana Workers Compensation Act, so the farmer did not have any workers compensation coverage.
The following claim story was told to me by one of my students, as it had been her responsibility to settle this claim. Extensive work was being done to a General Electric plant in Massachusetts. An electrician was working about 50 feet in the air. An error by a coworker caused a shot of electricity to come though the wires. The electric shock and minor explosion caused the electrician to fall to the floor, killing him. His widow collected the prescribed workers compensation benefits. Then she sued and was awarded a substantial six-figure settlement.
Welcome to the work of employers liability! As we stated in the opening paragraph, this coverage is not used often; but when there is an employers liability claim, it is usually for substantial sums of money. Employers liability would respond for each of the losses described above.
For the Texas loss, if the contractor was operating as an individual and owned the house in his name, the Employers Liability of the Workers Compensation contract for the business would respond. Should the contractor be operating as a corporation, there is the possibility that an insurer would deny coverage on the basis that the secretary was working for him as an individual, not the corporation insured on the Workers Compensation policy, at the time of the loss. There is no consistency to this scenario. For example, in Wisconsin, she would have been covered as she was still being compensated by the entity named on the Workers Compensation insurance policy.
Employers liability for farmers can be written by adding an endorsement to the farmer's Comprehensive Personal Liability policy.
Employers liability on the Workers Compensation policy for the electrician's employer paid for the spousal suit. While higher employers liability limits can be written, typical employers liability limits are $100,000 for bodily injury by accident; $500,000 for each employee for bodily injury by disease; and $500,000 policy limit for bodily injury by disease. If those were the limits for the Massachusetts loss, the amount of the loss in excess of $100,000 could have been covered by a commercial umbrella policy.
Two kinds of claims of recent vintage covered by employers liability are dual-capacity and action-over. A dual-capacity claim usually involves a manufacturer who is manufacturing a machine to sell to others. They also use some of those machines in their own manufacturing process. If an employee is injured while using one of those machines, workers compensation benefits are paid to the employee. In addition, the employee sues the manufacturer as the manufacturer of the machine. This is almost like a "products" claim. The manufacturer is held to be responsible in two ways, as the manufacturer and as the employer. Hence the generic nickname of dual-capacity claims.
Usually an action-over involves a general contractor and a subcontractor. An employee of the subcontractor is injured and takes workers compensation benefits from the subcontractor. In a separate legal action, the injured employee bypasses the subcontractor and sues the general contractor. The fact that the lawsuit against the general contractor bypassed the subcontractor is how this kind of legal action got its generic nickname of action-over.
Other examples of exposures covered by employers liability but not by workers compensation involve numerical exemption, illegal employment and noncompensable injury or disease.
--Numerical exception would apply, for example, in Michigan, where an employer does not need workers compensation if it has fewer than four employees.
--Illegal employment would be hiring an alien who does not have the proper paperwork.
--A noncompensable disease, for example, might be when a school teacher catches a disease from the students. (For instance, if a young married man were to catch mumps from his students, it could result in his becoming sterile.) Mental and emotional illnesses, plus heart related diseases, are specifically addressed by some states but not in others. An employers liability action is possible in any state where the workers compensation regulations have not addressed these situations.
A Minnesota contractor went into South Dakota to do a job. She took along her regular crew. Her Minnesota-based employees would be protected, while working temporarily in South Dakota, by her Workers Compensation policy. "Other States" wording in item 3) c of her Workers Compensation contract would cover any people hired specifically to work in South Dakota.
One part of the job required mowing and baling tall grass on the new construction site. She hired several South Dakota employees to do this and one of the employees was injured. Workers compensation did not apply to the injured South Dakota worker as the work they were doing was farm work, and farm workers are not compensable under the South Dakota workers compensation provisions. As he was not covered under workers compensation, the injured worker was free to bring an employers liability action.
Shortly after presenting this employers liability claim, the insurer responded with a denial. This is the policy provision the insurer quoted from the Workers Compensation Declarations page:
"3) b. Employer's Liability Insurance: Part two of the policy applies to work in each state listed in Item 3) a..."
South Dakota was not shown in Item 3) a of the Workers Compensation Declarations page, so there was no employers liability coverage for claims originating from there.
Endorsements solve problem
My experience has been that comparatively few insurance people are aware of the fact that employers liability insurance applies only to the state(s) listed in Item 3) a. Essentially, employers liability applies only in those states in which an insured actually has employees working. When asked if there were any exceptions to this, the insurance agent for the contractor told her that there was no way to change this policy provision.
While obtaining competitive quotations for her insurance program, the contractor mentioned this uncovered loss. One of the agents quoting on her insurance program told her that coverage could have been provided. Two endorsements can be attached to the contract to provide employers liability in all of the states.
NCCI Form WC 00 03 03 B (04/92), Employers Liability Coverage Endorsement, can be used to provide coverage in all states except Ohio and the states where the insured has a workers compensation exposure covered by listing those states in Item 3) a of the Declarations page. This is a "fill in" form. Wording must be inserted to have the endorsement do what it is intended to do. The form starts by saying, "This endorsement applies only to work in the states shown in the Schedule." Here is suggested wording to put into the Employers Liability Coverage Endorsement Schedule, "Coverage is to be provided in all states except Ohio and those states shown in Item 3) a of the Declarations page."
The National Council on Compensation Insurance (NCCI) Form WC 34 03 01 B (04/92), Ohio Employers Liability Coverage Endorsement, provides the coverage for Ohio. While the workers compensation insurance must be bought from the state of Ohio, one of the monopolistic fund states, employers liability insurance can be purchased from private insurers. Many insurers will provide stop-gap coverage to insure the employers liability insurance exposures in the six monopolistic fund states. Insurers typically will develop their own stop-gap endorsement which is attached to a general liability contract. Should an insured have a workers compensation policy for exposures in any non-monopolistic fund state, using the two NCCI forms negates the need for stop-gap coverage.
Summary
* Employers liability insurance is provided automatically on all workers compensation contracts that are not issued by monopolistic fund states. It can also be added to farmers comprehensive liability insurance contracts.
* Coverage for worker injuries not compensable under a given state's workers compensation program is the main purpose for providing employers liability coverage.
* Spousal suits, dual-capacity and action-over losses are also covered by employers liability.
* Usually, Item 3) a of a workers compensation policy declarations page shows just the states in which the insured has workers. Employers liability coverage automatically covers only in the states shown in Item 3) a.
* Ohio Employers Liability Coverage Endorsement, Form WC 34 03 01 B (04/92), can be attached to provide employers liability coverage for Ohio exposures.
* Form WC 00 03 03 B (04/92), Employers Liability Coverage Endorsement, can be used to provide coverage for exposures from states other than Ohio and those states listed in item 3) a of the Workers Compensation contract. Be sure the form is completed by having wording put on it say that coverage is to be for all states not listed in Item 3) a and Ohio.
While there are few claims under this coverage, we cannot afford not to provide the protection to our insureds. My information indicates that there is no premium charge to add the two recommended endorsements. I recommend adding the two employers liability endorsements to every workers compensation contract. *