Trade partners throughout the nation are challenged by labor shortages. Many employers have solved this problem by using temporary labor from third party service providers. While this can be a useful resource, it can create serious gaps in coverage for the contractor hiring the temporary or leased labor. These potential gaps can be company killers.
One of the most dangerous claims affecting trade partners is third party action over claims. A third party action over claim occurs when an employee's lawsuit against a third party rebounds back onto the employer because of that employer's prior contractual arrangement with the third party. An owner and/or GC get sued and use the indemnification clause of the contract to push the damages back down-stream.
Some policies will contain actual exclusion for “action over” type claims and others will manuscript verbiage contained in temp/leased employee exclusion. Both are very dangerous and can have a tremendous impact on your business.
Newfront recommends the following coverage strategies to help avoid profit robbing uncovered claim scenarios.
Coverage for Injury to Leased Workers Endorsement
(CG 04 24)
The coverage forms within the CGL policy are constantly changing and evolving. Carriers are using new manuscript forms and endorsements every year which can potentially reduce coverage. Every single word in the insurance contract can change how the policy responds. Adding the CG 04 24 can help to eliminate dangerous action over scenarios. However before filling this gap it is first important to understand how the potential gap is created. A gap in coverage arises from the way the CGL policy defines "temporary" and "leased" workers. Following are those definitions.
- “Leased Worker” is a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. "Leased worker" does not include "temporary worker."
- "Temporary worker" means a person who is furnished to you to substitute for a permanent "employee" on leave or to meet seasonal or short-term workload conditions.
Under the terms of a CGL policy, "employee" includes a leased worker, but does not include a temporary worker. The distinction is important, because the CGL policy's Exclusion e: employers liability excludes from coverage bodily injury claims made by an employee of the insured. Thus, if your CGL policy definitions consider the worker to be an "employee"- even though that worker is provided bya staffing agency - the policy will not cover any bodily injury claims by that worker. Some manuscript forms have broadened this exclusion.
If the worker is not specifically substituting for a permanent employee who is on leave, or meeting a seasonal need or short-term workload conditions, the worker is not a "temporary worker" in the eyes of the insurer, and instead is considered your employee for purposes of Exclusion e.
To be a "temporary worker," that individual must have a specific end date to their employment with you. A temporary employee who is hired for an indefinite period of time simply does not meet the criteria stated above, and is therefore considered an employee, and subject to Exclusion e if they are injured on the job.
Adding the Coverage for Injury to Leased Workers (CG 04 24) endorsement to your CGL policy will help you fill this coverage gap. This endorsement states that the term "employee" does not include a "leased worker" or "temporary worker," making the employers liability exclusion of the CGL policy inapplicable to the claims for injuries to a leased or temporary worker.
Making sure the appropriate coverage is in place is pivotal to remaining profitable in this challenging environment.
Alternate Employer Endorsement
(WC00 03 01 A)
Read the temp agencies contract and/or send it to your risk management professional. Knowing what is in the contract is key. It is recommended that the above endorsement is added to a workers' compensation policy. This endorsement is commonly used when a temporary help agency (the insured) is required by its customer (the alternate employer) to protect the alternate employer from claims brought by the insured's employees. An Alternate Employer Endorsement is an “add on” to your worker’s compensation policy, providing your client company with primary worker’s compensation coverage as if the temp worker were an insured on the policy.
Newfront is here to help review policy and endorsement language to ensure you’re not left with gaps when hiring temporary or leased employees. Contact Newfront for more detail and explanation around the finer points of this endorsement.
About the author
Principal & Senior Vice President
With over 15 years of insurance and construction experience Adam W. Gabler is a goal orientated risk management advocate with an emphasis on complex casualty placements. Adam holds multiple construction professional designations. Analyzing construction contracts in excess of 3 billion dollars in construction values. His proactive approach to the changing needs of clients, wholesalers, and underwriters brings the most comprehensive coverage and palatable economic price point. Connect with Adam on LinkedIn.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.
Share this article
Keep up to date with Newfront News and Events—
Newfront’s Guide to Bank Closures and Insurance: Five Considerations for Protecting Your Assets
March 16th 2023