Could an exclusion in your own commercial general liability (CGL) policy leave your small business subject to damages as a result of a worker’s injury, favorite employee already received workers’ compensation benefits? It may look much like the answer should be an effective “No,” due to the fact workers’ compensation generally limits the remedies a staff can acquire from an employer for any work-related injury. Yet, whenever a business assumes general liability by having a contract having a third-party, a better solution could be a very costly “Yes.”
This is because workers’ compensation is not going to bar injured employees from suing any other companies, and it is entirely possible that those lawsuits to circle back at a alternative party on the employer. These lawsuits are usually termed as “third-party action-over” claims. Now of course employer’s CGL excludes all coverage for claims involving its employees’ work-related injuries, the business could finish up facing a third-party action-over claim without being insured.
This is a complicated risk, but knowing the nature of the potential liability as well as limits and exclusions of one’s insurance coverage is vital to protecting yourself from that exposure.
Third-party Action-over Claims Eplained
In short, a third-party action-over claim develops when an employee’s lawsuit against a third party rebounds back in the employer because of this employer’s prior contractual arrangement with the alternative party. That will sound complicated, but a good example can certainly help illustrate the parties involved and the nature with the liability:
- A homeowner hires a contractor, which contains their own employees, to assistance in the building of an office building.
- As a provision with the construction contract, the contractor agrees to indemnify the house or property owner against liabilities that will arise through the contractor’s performance within the work.
- An employee within the contractor is injured within the construction job site.
- The employee files for, and collects, workers’ compensation from the contractor.
- In addition, the worker files legal action contrary to the owner of a house that alleges negligence as a result of maintaining a safe job site.
- Because the contractor agreed to indemnify the house owner in the construction contract, the house or property owner shifts its liability for negligence to the contractor.
It’s worth noting how the third party needn’t be a home owner. Any other other could trigger the action-over claim, assuming that the business (the contractor inside above example) has a contractual agreement with all the 3rd party that indemnifies the final party from liability.
The Limits of Workers’ Compensation
At having a look, it may look like like there has been an error in judgment. In the end, workers’ compensation exists to limit an employer’s liability for employees’ work-related injuries. One bit of employee while in the above example gets workers’ compensation benefits, this doesn’t happen seem possible for the business (contractor) to remain sued for any other liability.
However, with this scenario, the staff member sues your third party, not the business. It’s only as a result of contractual arrangement between the other and the employer the liability shifts back in the employer.
This may also appear like employer’s liability (EL) insurance should cover this, becasue it is manufactured to pay for claims that traditional workers’ compensation doesn’t. However, the typical EL policy specifically excludes third-party action-over claims. Therefore, CGL insurance policies are the exact only coverage an employer can speak to involving third-party action-over claims.
Third-party Action-over Claims and also your CGL Policy
The standard CGL policy explicitly excludes coverage for almost any claims involving work-related injuries to employees in the policyholder, but a critical exception for this exclusion brings third-party action-over claims back beneath CGL coverage.
Namely, the exception allows coverage for employee-related liability which the policyholder assumes for the alternative party using a contract. In other words, should the policyholder has signed a contractual arrangement that can bring by using it an attendant liability-as it will do in a third-party action-over claim-the employee-damages exclusion to the CGL doesn’t apply.
These days, however, some insurers have attempt to reduce their losses by amending or altering the typical CGL policy. Different carriers now utilize different tactics, although the effect has been the same-to eliminate the policyholder’s defense against liability in third-party action-over claims.
One provision to watch out for may be the absolute employer’s liability exclusion. Because its name implies, this excludes the policyholder’s coverage associated with employee injuries, whatever the circumstances-including third-party action-over claims.
It is necessary for businesses to make sure their CGL policies don’t contain these exclusions or remove protection in different methods. In the end, these exclusions would mean that a small business with workers’ compensation, employer’s liability and commercial liability insurance could nevertheless be held directly liable-even for an individual else’s negligence.
Protecting Your Business
Third-party action-over claims might appear to be a convoluted risk, playing with case of one other party’s negligence, that risk could become costly. For better or worse, there’s very little else a small business can perform apart from to assure it’s appropriate coverage.
Insurance coverages could be complicated documents, often stuffed with exclusions, exceptions and exclusions of your exceptions. For this reason you have to utilize a trusted advisor when assessing your business’s exposures and selecting the proper coverage to fit your business’s specific needs.
Call us today at Neckerman Insurance Services today at 608-238-2686 for more information on your CGL insurance options and then to be certain you’re covered.