Temporary Workers and Alternate Employer Endorsement
Temporary Workers May Sue Your Firm For On-The-Job Injuries
For businesses, the use of temporary workers offers several advantages. For one thing, a business can save on administrative expenses since the temporary agency handles payroll, fringe benefits, and employment taxes for the workers it provides. Another advantage is lower workers compensation costs. In most states, the employment agency is considered the temporary workers' employer so it (not the hiring company) is obligated to insure them under a workers compensation policy.
Yet, the fact that the temporary agency has purchased the workers compensation insurance covering the "temp" workers creates a problem for the client (the company to which the temporary worker has been assigned). As the following example demonstrates, this arrangement can leave the client company with no insurance for lawsuits by injured temporary workers.
Anne owns Accurate Accounting, a company that provides accounting services to small businesses. Accurate Accounting's receptionist is leaving the firm and Anne has decided to replace her with a temporary worker. If the worker performs satisfactorily during a six-month trial period Anne will make him or her a permanent employee.
Anne contacts Terrific Temps, a temporary agency, which sends her an experienced worker named Jill. Anne has confirmed that Terrific Temps has insured all of its workers (including Jill) under a workers compensation policy.
Jill has been working at Accurate Accounting for about four months when she slips on a puddle of water in the office kitchen. Jill falls to the floor, breaking her hip. She is taken to a hospital, where she remains for 10 days. Jill receives workers compensation benefits, including extensive rehabilitation, from Terrific Temps' workers compensation insurer. Unfortunately, she never recovers full use of her hip and doesn't return to work at Accurate Accounting.
No Coverage Under Accurate Accounting's WC Policy
Eight months after the accident Anne is served with a lawsuit. Jill has sued Accurate Accounting, claiming that the firm is liable for her injury because it failed to maintain a safe workplace.
Anne sends the suit to her firm's' workers compensation insurer. The policy includes Employers Liability coverage and Anne is confident it will cover Jill's lawsuit. To Anne's dismay, the insurer denies coverage. It asserts that the claim isn't covered because Jill was not an Accurate Accounting employee when her injury occurred. Rather, Jill was an employee by Terrific Temps. The insurer points out that Jill has already received benefits from Terrific Temps' workers compensation insurer.
No Coverage Under Accurate Accounting's GL Policy
Anne decides that if the lawsuit isn't covered by her firm's workers comp insurance then it must be covered by its general liability policy. She forwards the claim to her liability insurer. Unfortunately, the liability insurer denies coverage as well, citing the employers liability exclusion. Like most general liability policies, Accurate Accounting's policy excludes bodily injury to any of Accurate Accounting's employees if the injury arises out of the injured employee's employment.
When Anne reads the policy definitions, she notes that the meaning of employee does not include a temporary worker. She phones her insurer and argues that the employers liability exclusion should not apply to Jill's claim because Jill was a temporary worker. The insurer points out that the definition of temporary worker is very specific. This term means a person who is furnished to the named insured (employer) either as a substitute for a permanent employee on leave or to meet seasonal or short-term workload conditions.
Jill wasn't hired either as a substitute for a permanent employee on leave or to meet seasonal or short-term workload conditions. As a result, she does not meet the definition of temporary worker. Within the context of Accurate Accounting's liability policy, Jill was an employee when her injury occurred. Accurate Accounting's policy excludes lawsuits brought by employees for injuries sustained on the job. It will not cover Jill's suit.
Alternate Employer Endorsement
Anne could have protected her company against lawsuits like Jill's by requesting coverage as an alternate employer under Terrific Temps' workers compensation policy. A standard NCCI endorsement is available for this purpose. It is called the Alternate Employer endorsement and can be attached to the temporary agency's workers comp policy.
Within the context of the endorsement, the "alternate employer" is the employment agency's client. "You" means the named insured (the temporary agency named on the policy). To be covered, the alternate employer must be listed in the endorsement schedule. The schedule must indicate the state in which the temporary workers are employed.
The endorsement affords the alternate employer both Workers Compensation and Employers Liability coverages. Workers compensation coverage protects the alternate employer in the event it is required to pay benefits to an injured temporary worker. Employers liability insurance covers lawsuits brought against the alternate employer by injured temporary workers (like Jill's suit against Accurate Accounting).
The endorsement covers injuries sustained by employees during their temporary or "special" employment by the alternate employer. The "temp" agency remains the worker's primary employer. The client is an insured only while the temporary worker is assigned to it. If a contract or project is specified in the schedule, then coverage applies only to work performed by the temporary workers under that contract or at that project.
The Alternate Employer endorsement does not cover the alternate employer's regular employees. Moreover, it cannot be used to insure workers leased from a professional employer organization (leasing firm). Leased employees must be insured for workers compensation under a different set of endorsements in accordance with state law.
Conditions of Coverage
The Alternate Employer endorsement imposes certain policy conditions on the alternate employer. The latter must immediately report any injury involving a temporary worker to the employer's workers compensation insurer. The alternate employer must also provide immediate medical care to the injured worker and forward all relevant documents to the insurer or its agent.
One condition that does not apply to the alternate employer is the cancellation clause. The alternate employer is not the named insured so it is not entitled to notification if the policy is canceled.