Stop Gap-Employers Liability Coverage

STOP GAP–EMPLOYERS LIABILITY COVERAGE

(December 2020)

BACKGROUND

Workers compensation coverage and Employers Liability coverage interact with one another and work together; understanding this point is essential to understanding what stop gap coverage is, how it works, and who needs it. Workers compensation pays benefits to employees injured on the job without regard to fault. In return, the injured worker gives up his or her right to sue the employer. Workers compensation coverage is usually (but not always) the exclusive remedy for employee injuries. Situations develop from time to time, where an employer that is liable for injuries to its employees can be sued. Some examples are:

Example: Glimple Manufacturing is faced with a serious claim. A maintenance worker fell off a ladder while painting a factory floor window. He ended up paralyzed. The ladder collapsed due to improper welding when it was made, and the ladder’s maker was Glimple.

Commercial general liability coverage forms specifically exclude coverage for all these situations and loss exposures. However, coverage is available under employers liability insurance. This coverage is part of the workers compensation insurance policy and applies in addition to the coverage that pays workers compensation benefits.

THE NEED FOR STOP GAP COVERAGE

In monopolistic workers compensation states, workers compensation laws provide the exclusive remedy for injured employees, according to the prescribed benefits the state fund establishes. Injuries, disease, and lost wages are covered, but the employer's other liability exposures listed above are not.

Related Article: Workers Compensation Monopolistic State Funds

TWO APPROACHES

1. Endorse the Workers Compensation and Employers Liability Insurance Policy

a.   If the named insured already has a Workers Compensation and Employers Liability Insurance Policy in force that covers operations in other states, Employers Liability Coverage can be extended to monopolistic states:

·         WC 00 03 03 C–Employers Liability Coverage Endorsement is used in North Dakota, Washington, and Wyoming.

·         WC 34 03 01 C–Ohio Employers Liability Coverage Endorsement is used in Ohio

b.   If the named insured employer operates in only a monopolistic state(s), the Workers Compensation and Employers Liability Insurance Policy can be issued to provide only Employers Liability Coverage (and nothing else). The same endorsements described above are used.

Related Article: WC 00 00 01 B–Workers Compensation and Employers Liability Insurance Policy Analysis (Part Two–Employers Liability Insurance)

Both endorsements are fairly simple. They state that Part 1–Workers Compensation Insurance does not apply and add that Part 2–Employers Liability Insurance applies but only in the state(s) listed on the endorsement schedule. These states are treated as though they were listed in item 3. a. on the Information Page.

WC 00 03 03 C–Employers Liability Coverage Endorsement has one additional employers liability exclusion:

  1. There is no coverage for bodily injury to an employee when the named insured is deprived of common law defenses or is subject to penalty because it did not secure its obligation under the workers compensation law in the state(s) listed on the endorsement schedule.

WC 34 03 01 C–Ohio Employers Liability Coverage Endorsement is identical to WC 00 03 03 C, with the exception that it adds an additional exclusion.

  1. Coverage does not apply to bodily injury to an employee the insured caused intentionally or aggravated, or that results from an act it committed believing that an injury was likely to occur.

2. Use the Insurance Services Office (ISO) Commercial General Liability Coverage Form

ISO developed Stop Gap–Employers Liability Coverage endorsements in 2004 to attach to the Commercial General Liability Coverage Form. A separate endorsement is available for each monopolistic state. The following analyzes common features of the forms based on CG 04 41–Stop Gap-Employers Liability Coverage Endorsement–Ohio.

Schedule

The schedule is similar to that in the standard Workers Compensation and Employers Liability Policy and requires a limit for each of the following:

CG 00 01–Commercial General Liability Coverage Form is then modified as follows:

A. STOP GAP–EMPLOYERS LIABILITY COVERAGE IS ADDED TO SECTION I, COVERAGES.

1. Insuring Agreement

a.     The insurance company pays amounts the insured employer is legally required to pay. However, the only payments made are those for damages that are either bodily injury by accident or bodily injury by disease to an employee of the named insured. The obligation must be based on the specific state law, and the insurance must apply.

The insurance company has the right and duty to defend any legal action filed against any insured that seeks damages. It does not defend actions for damages that this insurance does not cover. The company also reserves the right to investigate accidents and settle suits that arise from them. It does not pay more than the limits listed above for damages. Its obligation to defend ends when the limit that applies is used up paying judgments and settlements. In addition, it does not have any other requirement to pay or perform other acts or services except for those under Supplementary Payments.

b.     Coverage applies to only bodily injury by accident or bodily injury by disease that occurs in the coverage territory. The injury or disease must arise out of and in the course of the covered worker's employment by the named insured. The injured employee must be subject to the workers compensation law of the state where the incident occurred. The accident that causes the bodily injury by accident must occur during the policy period. Bodily injury by disease applies only if the employee's exposure to the conditions that caused or aggravated the disease took place during the policy period.

c.     Where the law permits recovery, the insurance company pays damages for the following:

·         Cases where the named insured is liable to a third party because of a legal action filed to recover damages claimed against that third party that results from an injury to a covered worker

·         Care and loss of services

·         Consequential bodily injury by accident or disease to a defined family member of the injured employee

Note: These damages must result directly from the employee's bodily injury by accident or bodily injury by disease that arises out of and in the course of his or her employment by the insured or in a capacity other than that of an employer.

2. Exclusions

Coverage does not apply to the following:

a. Intentional Injury

This is bodily injury by accident or disease the named insured intentionally causes or aggravates. It includes bodily injury by accident or disease that results from an act the named insured commits knowing or assuming that an injury is likely to occur.

b. Fines or Penalties

These are any assessments, fines, or penalties that any regulatory authority or agency assesses against the named insured.

c. Statutory Obligations

These are obligations that workers compensation, disability benefits, unemployment compensation, and similar laws impose on the named insured employer.

d. Contractual Liability

This is liability the named insured assumes under a contract or agreement.

e. Violation of Law

This is bodily injury by accident or bodily injury by disease to any worker employed in violation of the law if the named insured or one of its executive officers knew about the violation.

f. Termination, Coercion, or Discrimination

These are damages caused by, that result from, or that arise out of coercing, criticizing, demoting, evaluating, reassigning, disciplining, defaming, harassing, humiliating, discriminating against, or terminating any employee. It includes similar conditions due to, and that arise out of the named insured's other employment or personnel decisions.

g. Failure to Comply with Workers Compensation Law

This is bodily injury by accident or bodily injury by disease to an employee when the named insured is subject to some kind of penalty or is denied common law defenses because it did not comply with applicable workers compensation laws.

h. Violation of Age Laws or Employment of Minors

This is bodily injury by accident or bodily injury by disease sustained by or caused by any person the named insured knowingly employed in violation of any law that pertains to age or by any person less than 14 years of age, regardless of any law.

i. Federal Laws

This exclusion applies to any premium, assessment, penalty, fine, benefit, liability, or other obligation imposed by or granted pursuant to the following (and as amended):

·         The Federal Employers Liability Act

·         The Non-appropriated Fund Instrumentalities Act

·         The United States Longshore and Harbor Workers' Compensation Act

·         The Outer Continental Shelf Lands Act

·         The Defense Base Act

·         The Federal Coal Mine Health and Safety Act

·         The Migrant and Seasonal Agricultural Worker Protection Act

·         Any other workers compensation, unemployment compensation, disability, or similar law

·         Amendments to any of the above

j. Punitive Damages

This also includes multiple and exemplary damages.

k. Crew Members

This is bodily injury by accident or bodily injury by disease to the master or crewmembers of any vessel or to any member of an aircraft flying crew.

B. SUPPLEMENTARY PAYMENTS APPLIES TO STOP GAP–EMPLOYERS LIABILITY COVERAGE IN ADDITION TO COVERAGE A AND COVERAGE B.

C. SECTION II–WHO IS AN INSURED IS REPLACED.

The types of entities that can be the named insured are listed on the declarations. Even though only one type of entity can be selected for each named insured, multiple types of entities can be selected if there are multiple named insureds. Each type of entity has different parties that are considered insureds and the conditions under which they are insureds.

  1. If the named insured is an individual, the individual is an insured as well as the named insured's spouse. However, this is not all-inclusive in every situation. Their status as named insureds is limited to operations of the business for which the named insured is the sole owner.
  2. If the named insured is a partnership or joint venture, the partnership or joint venture is an insured. In addition, members and partners of the named insured and their spouses are insureds. Their status as insureds is limited to operations of the named insured's business.
  3. If the named insured is a limited liability company, the limited liability company is an insured. In addition, members of the company are insureds but only with respect to conduct of the named insured's business. The named insured's managers are also insureds but only to the extent of their specific duties as managers.
  4. If the named insured is any other organization, it is an insured. In addition, its executive officers and directors are insureds but only to the extent of their duties as such. Stockholders are also insureds but their status is limited to the extent of their liability as stockholders.

D. SECTION III–LIMITS OF INSURANCE IS REPLACED BY THE FOLLOWING:

  1. The limits on the endorsement schedule are the most paid, regardless of the number of insureds, claims made, legal actions initiated, or persons or organizations that make claims or initiate legal action.
  2. The limit for Bodily Injury by Accident – each accident is the most paid for all covered damages because of bodily injury by accident to one or more workers in any one accident.
  3. The limit for Bodily Injury by Disease – aggregate limit is the most paid for all covered damages due to bodily injury by disease, regardless of the number of workers who sustain bodily injury by disease.
  4. The limit for Bodily Injury by Disease – each employee is subject to the Bodily Injury by Disease–aggregate limit. It is the most paid for all covered damages because of bodily injury by disease to any one worker.

The limits apply separately to each consecutive annual period. They also apply to any remaining period that consists of less than 12 months, starting with the policy's inception date unless the policy period is extended after the policy is issued for another period of less than 12 months. If that happens, the additional period is considered part of the previous period to determine insurance limits.

E. SECTION IV–CONDITIONS, 2. DUTIES IN THE EVENT OF OCCURRENCE, CLAIM, OR SUIT IS REPLACED BY THE FOLLOWING:

  1. The named insured must inform the insurance company or its agent of any incident that may result in a claim. The notice should include details of how, when, and where the incident occurred, names and addresses of both injured persons and witnesses, and the nature and location of the injury.
  2. If legal action is initiated, the named insured must immediately record its details, the date it was received, and notify the insurance company as soon as possible. It must also take steps to ensure that the insurance company receives notice of the claim or legal action as soon as practicable.
  3. The named insured must immediately send the insurance company any legal papers it receives that involve an injury, claim, or suit, and authorize the insurance company to obtain records and other information. It must cooperate with the company and assist it to the extent required to investigate and settle claims and defend legal actions. It must also help the company enforce its rights against any party that may be responsible for the injury and not do anything after an injury occurs that interferes with the company's right to recover from others.
  4. The named insured may not voluntarily make any payments, assume obligations, or incur any expenses, other than for first aid, without the company's consent. If it does, it does so at its own expense.

F. DEFINITIONS, PARAGRAPH 4, COVERAGE TERRITORY, IS REPLACED WITH THE FOLLOWING:

Coverage territory

This includes the United States of America, its territories and possessions, Puerto Rico, and Canada. It includes international waters or airspace if the injury or damage occurs during travel or transportation between any of these places.

It also includes the rest of the world if the injury or damage develops from activities of a person away for a short period on the named insured's business. In such cases, coverage is provided only if the damages are initiated in the coverage territory, or the insurance company works with the individual to reach a settlement.

G. THREE DEFINITIONS ARE ADDED TO THE DEFINITIONS SECTION:

  1. Workers Compensation Law

This is the workers compensation and occupational disease law of the state involved. It does not include laws that apply to non-occupational disability benefits.

  1. Bodily injury by accident

This includes bodily injury, sickness, disease, or death that results from an accident. This definition includes only disease that results directly from bodily injury by accident.

  1. Bodily injury by disease

This means a disease a person sustains. It includes death that results. It does not include disease that results directly from an accident.

H. THE DEFINITION OF BODILY INJURY DOES NOT APPLY.