The Rough Notes Company, Inc., is not legal counsel and we cannot give legal advice. What we can do is offer some things to think about with regard to the question presented and one possible interpretation of some of the coverage forms.
Q The insured, which has leased employees but does no hiring on its own, has an arrangement with a leasing company to lease an employee for up to 90 days. If the leased employee proves to be satisfactory, he/she will become a regular employee of the insured.
Questions are as follows:
1. Since the CGL states that leased employees are considered as employees and that employees are considered as insureds, how could the employer be protected in a case where the leased employee sues the employer? Fellow employee suits are not covered by the CGL.
2. Since the lessor provides workers compensation, if an employee is injured and the lessor's workers compensation carrier wants to subrogate against our insured, how do we insure the employer against this risk?
A The best response to address your concerns is the following section excerpted from Rough Notes' PF&M:
STOP-GAP OR EMPLOYERS LIABILITY INSUANCE WHAT IS STOP-GAP LIABILITY?
Stop-gap or employers liability insurance is becoming more and more important in our society today. It accomplishes more than one purpose. The following are some of the reasons or needs for this coverage:
* Employers liability coverage is often sought in those monopolistic workers compensation states where the coverage provided by the state is not as broad as that of a standard workers compensation policy.
* Finding coverage for workers who are otherwise not covered or are not compensable under a specific state's workers compensation program is one of the primary reasons for purchasing this coverage.
* Trends in our current methods of employment, such as employee leasing, are resulting in the need for employers liability coverage.
* Employers liability coverage can be added to farm liability policies to provide coverage for this oftimes unprotected exposure found in farming operations.
* With the increase in litigation from areas such as spousal suits, dual-capacity and action-over losses, the need for employers liability coverage is increasing at a phenomenal rate.
Many insurers offer a nonstandard coverage called stop-gap or employers liability coverage. This is often added by endorsement to the insured's commercial general liability policy or may be stand-alone. It can either fill in the coverage gap between what is provided by the state and what is traditionally provided by a standard workers compensation policy or it can extend the coverage provided in a commercial general liability policy to provide for the employer's liability situation.
An alternative method of providing the employers liability coverage for monopolistic states is by endorsement to a NCCI or standard workers compensation policy.
We will explore both approaches.
THE NEED FOR EMPLOYERS LIABILITY OR STOP-GAP INSURANCE
In some monopolistic workers compensation states (Ohio, for example), the workers compensation law of that state provides remedy for injured employees per the prescribed benefits as set forth by the state fund. Injuries, disease, wage loss and related items are covered by the fund, but not covered as to any other liability the employer may experience. The commercial general liability policy (CGL) does not cover the liability of the employer either--in fact, it is specifically excluded. The exclusion commonly goes something like this:
Employers Liability Exclusion--Excluded is any bodily injury to an employee of the insured, or the spouse, child, parent, brother, or sister of that employee, as a consequence or result of:
* employment of that employee by the insured;
* performance of duties necessary and relating to the conduct of the insured's business.
It is further clarified that the exclusion applies whether the insured is liable as an employer or in any other capacity; or whether the insured is obligated to share damages with or repay someone else, who must pay damages because of the injury.
This is a particularly important clarification because of the widespread use of contractors, subcontractors, independent contractors or leased employees and much of the uncertainty with respect to who is responsible.
Thus, in some monopolistic states, the workers compensation issues are addressed by state-provided coverage but not necessarily the employers liability concerns--which are specifically excluded in the employer's CGL. Further, new trends in hiring, such as employee leasing situations, result in confusion as to who provides what coverage with respect to that leased worker and what if that worker is injured and sues everyone? What results is a coverage gap.
There are several significant areas of unprotected coverage concern in monopolistic states not providing employers liability, including: Employees operating with dual capacity, intentional acts by employers (which will be looked at a little more in the subsequent discussion), employment-related diseases not addressed by workers compensation law, and third-party-over claims/suits.
STOP-GAP OR EMPLOYERS LIABILITY COVERAGE
As an Endorsement to the CGL
Probably the most common method of providing stop-gap or employers liability coverage is through endorsement to the employer's CGL. Many insurers have developed endorsements to address the lack of employer's liability coverage. These endorsements may either be blanket stop-gap protection, multi-state--covering all monopolistic states--or state-specific stop-gap protection addressing the situations peculiar to only an individual state. They may or may not pick up other employers liability exposures for the situations mentioned such as leased employees. While blanket stop-gap endorsements are easy to use and sound good, they are not always 100% effective because of the individual issues and interpretations that vary between jurisdictions.
Stop-gap and employers liability endorsements to the CGL are manuscript or company-specific and may vary a great deal between each insurer. Each must be read carefully and analyzed for its applicability to the situations to be covered and the state or states the insured employer will be operating in. Never assume that all cover the same thing. Coverage will vary greatly between insurers.
At the present time, the Insurance Services Office (ISO) does not have a standard stop-gap endorsement available for the CGL, although many members and subscribers have asked for such.
Coverage approach: Again, coverage will vary between insurer and by state. Some approaches are simply to manuscript an endorsement that deletes or modifies the above mentioned employers liability exclusion in the CGL. Others are almost duplicates of the coverage grants found in Part II--Employers Liability as found in the Workers Compensation And Employers Liability Insurance Policy--WC 00 00 00 A. (Refer to PF&M section 280.4-2 for a detailed analysis of the policy.) Still others are far more comprehensive, combining both the coverage grants of the WC 00 00 00 A and the needs of the individual state they are designed to be used in.
An example of this is Ohio. In Ohio, an act with intent to injure is not insurable as it is against public policy. On the other hand, an intentional, negligent act that was not committed with injury in mind (even though a reasonable person would most likely know that injury would result) is insurable. So if an intentional act was committed and injury or harm was the sole purpose of the act, there is no coverage. But if the intentional act was merely negligence and injury happened to result (even though the perpetrator most likely knew someone would be hurt), it can be insured. Thus, a stop-gap coverage endorsement must be developed to provide employers liability, which includes coverage for the second type of intentional injury for the state of Ohio. Several other states take similar approaches, resulting in the need for state-specific stop-gap endorsements. Previously, blanket stop-gap endorsements were mentioned and while they appear to simplify the situation, they may not adequately address the needs of the individual insured. Take time to evaluate them, and always use them with caution.
As an Endorsement to the Standard Workers Compensation And Employers Liability Insurance Policy
Another approach to the stop-gap or employers liability coverage can be found in the standard Workers Compensation And Employers Liability Insurance Policy itself. There are two approaches that can be used.
First, if the insured employer has no operations in any state but the monopolistic state, a standard Workers Compensation And Employers Liability Insurance Policy can be issued without workers compensation coverage--providing only the employers liability coverage. This can be accomplished by adding endorsement WC 00 03 03 B--Employers Liability Coverage Endorsement and scheduling the state where workers compensation does not apply but employers liability does. WC 00 03 03 B can be used in any monopolistic state but Ohio. For Ohio, WC 34 03 01 B must be added. So a stand-alone Workers Compensation And Employers Liability Insurance Policy can be issued to provide only employers liability.
Second, if the insured already has a standard Workers Compensation And Employers Liability Insurance Policy for other states, by using the same endorsements mentioned above, coverage for employers liability only can be added for the monopolistic state(s).
Coverage approach: Both the WC 00 03 03 B and the WC 34 03 01 B are fairly simple endorsements. They both start by clearly stating that Part 1--Workers Compensation Insurance does not apply and that only Part 2--Employers Liability Insurance does apply to the states that are scheduled in the endorsement for WC 00 03 03 B or Ohio for WC 34 03 01 B.
Further, two additional employers liability exclusions are added via this endorsement:
* There is no coverage for bodily injury to any member of the flying crew of any aircraft.
* There is no coverage for bodily injury to an employee when the insured is deprived of common law defenses or subject to penalty because of failure to secure the obligation under that state's workers compensation law or otherwise fail to comply with that law (either for Ohio or the states scheduled on the endorsement).
Ohio has one other exclusion in addition to the above two:
OHIO STOP-GAP LIABILITY
A little on Ohio Stop-Gap Liability in particular follows. For those workers who are Ohio-based but work in or out of other states, Ohio has two endorsements. Both require the signature of each employee each year.
One allows the employee to choose to come under the jurisdiction of the Ohio workers compensation laws if injured out of state. The second allows the employee to choose to be covered by the state workers compensation laws where that employee is actually injured.
CONCLUSION
Because of the exposures faced by employers in monopolistic states as well as the myriad of otherwise potentially uncovered liability situations, employers liability insurance is a vital and necessary part of any employer's overall protection. No insured can truly afford to be without it whether it comes as a workers compensation policy itself, or as an endorsement to workers compensation insurance or to the CGL *