Temporary Workers and Alternate Employer Endorsement
Like many small businesses, your company may obtain workers from a temporary employment agency. In most states, the employment agency is considered the workers' employer. As such, the agency is obligated to insure the workers under a workers compensation policy. This arrangement can you save money on workers compensation premiums. As the following example demonstrates, however, it can also leave you with no insurance for lawsuits by injured temporary workers.
Diane owns Divine Delights, a small company that manufactures cookies. Divine Delights' sales have been rising steadily, and Diane wants to boost production. To increase the company's output, Diane will need to hire another employee. Diane decides to hire a temporary worker for a trial period of six months. If the worker performs well, Diane will make him or her a permanent employee.
Diane contacts Terrific Temps, a temporary agency. The agency sends an experienced worker named Jane to Divine Delights. Jane seems to be a good fit, and Diane is pleased with her work. Diane has confirmed that Jane is covered for any on-the-job injuries under a workers compensation policy purchased by Terrific Temps.
Jane has been working at Divine Delights for about three months when an accident occurs. She is in the storeroom, reaching for a can of baking powder, when a shelf suddenly collapses. Both the shelf and its contents fall on Jane, injuring her head.
Jane is taken to a hospital, where she remains for a month. Jane receives workers compensation benefits from Terrific Temps' workers compensation insurer. Jane never returns to work at Divine Delights.
No Coverage Under Divine's Workers Comp Policy
Several months after the accident, Jane files a lawsuit against Divine Delights.
Her suit claims that Divine Delights is liable for her injury because the company failed to maintain a safe workplace.
Diane sends the suit to Divine Delights' workers compensation insurer. She believes that the suit should be covered by Employers Liability, Part Two of the policy. To Diane's surprise, the insurer denies coverage, asserting that Jane is not Divine Delights' employee. It contends that Jane is an employee by Terrific Temps. In fact, Jane has already received benefits under Terrific Temps' workers compensation policy.
No Coverage Under Divine's General Liability Policy
Next, Diane files a claim under Divine Delights general liability policy. She is dismayed when her liability insurer also denies coverage for the claim. In its denial letter, the insurer cites the employers liability exclusion. Like most general liability policies, Divine Delights' policy excludes bodily injury to any of Divine's employees if the injury arises out of the injured employee's employment.
While reading the policy definitions, Diane notices that the term employee does not include a temporary worker. Diane phones her insurer. She argues that Jane was a temporary worker, so the exclusion should not apply to Jane's claim.
The insurer points out that temporary worker has a very specific meaning in the liability policy. 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.
Jane 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 Divine Delights' liability policy, Jane was an employee when her injury occurred. Divine Delights' policy excludes lawsuits brought by employees for injuries sustained on the job. It will not cover Jane's suit.
Alternate Employer Endorsement
To protect Divine Delights against lawsuits like Jane's, Diane could have requested coverage as an alternate employer under Terrific Temps' workers compensation policy.
The Alternate Employer endorsement is attached to the temporary agency's workers comp policy. All references to "you" in the endorsement mean the temporary agency (the employer named on the policy). The alternate employer is the agency's client (the company to whom the temporary worker has been assigned).
The endorsement covers injury sustained by employees during their temporary or "special" employment by the alternate employer listed in the endorsement schedule. The schedule must indicate the state in which the temporary workers are employed. 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 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 coverage insures the alternate employer against lawsuits brought by injured workers (like Jane's suit against Divine Delights). This coverage is provided under Part Two of the client's workers compensation policy.
The Alternate Employer endorsement does not cover the alternate employer's regular employees. Thus, Divine Delights could not use the endorsement to satisfy its obligation to purchase workers compensation coverage on behalf of its own employees.
Exclusive Remedy Rule
In many states, workers compensation benefits are an injured worker's exclusive remedy (sole source of compensation) for an employment-related injury. Consequently, workers who are injured on the job are generally barred from suing their employer. This concept is called the exclusive remedy rule.
When a business obtains workers from a "temp agency," the business (client company) is not the workers' employer. Thus, the temporary worker is not barred from suing the client. Fortunately, the employers liability coverage that is provided by the Alternate Employer endorsement protects the client against such suits.
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 insurer is not obligated to notify the alternate employer if the policy is cancelled. This is because the alternate employer is not the named insured under the policy.
Not For Leased Workers
The Alternate Employer endorsement cannot be used to insure workers you have 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.