The Back-Up Plan: Workers’ Compensation and Employers Liability
The “grand bargain” of workers’ compensation relies on injured workers giving up their right to sue in civil court in exchange for certain statutory benefits in a no-fault system. A trend in judgements, however, has allowed injured workers to pursue these and circumvent the exclusive remedy protections for employers. This RIMS 2016 session examined the role that employers liability insurance plays in protecting organizations from employee injury, disease or death claims caused by workplace practices or conditions that are not covered by workers’ compensation.
- Mark Walls, Vice President Communications & Strategic Analysis, Safety National
- William Zachry, Vice President Risk Management, Safeway, Inc.
The employers liability section of the workers’ compensation program was essentially added just in case everything was not covered by the actual workers’ compensation portion of the policy.
Challenges to the System
The courts usually allow remedy to be awarded somewhere else if workers’ compensation will not cover the injury. Examples of this include:
- Third-party over actions. These involve blaming a third party (like equipment) for the injury. There are multiple states that will allow the employer to sue this third party as part of a workers’ compensation settlement.
- Dual capacity suits. These suits can occur when an employee is injured by equipment manufactured by the employer.
- Workers excluded from workers’ compensation. Many states exclude agricultural workers from coverage, for instance, and these workers can turn around and sue the employer if they become injured.
There are constitutional challenges being made frequently where arguments are being made that changes in the workers’ compensation benefit have eroded exclusive remedy over the years. There are major case examples in Florida and Oklahoma. Attorneys fees are also being included in settlements, sometimes for much more than the actual workers’ compensation benefit, and are being awarded. This has created a financial incentive to encourage this behavior and, thus, the frequency of constitutional challenges.
In addition, there are statutory exceptions to exclusive remedy like intentional acts if the employee can prove that they were injured by an intentional act by the employer. Other exceptions include Texas Opt-Out and, if challenged, those employers that opt-out need to know what is covered and not covered in the process and have appropriate insurance policies to address these factors.
What Should Risk Managers Do?
No one pays extra for the employers liability portion of the workers’ compensation policy, however, it’s important to understand your limits to make sure that you don’t have a gap. Make sure you understand what kind of exposure you have so that your liability policy or your umbrella policy will at least cover your defense.
There are also going to be differences depending on what type of policy you have. There is tight language around what’s covered in a first-dollar policy versus and large deductible policy, for example.
If you receive this type of case, notify your carriers immediately and have very open communication with them. These are very fact-based cases with complicated coverage issues and the carriers can become your allies. Involve all carriers, not just your workers’ compensation carrier, from day one.