STOP GAP–EMPLOYERS LIABILITY COVERAGE

(September 2009)

BACKGROUND

Workers compensation coverage and employers liability coverage interact and work together. Understanding that interaction 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 the exclusive remedy for employee injuries but not in all cases. Situations develop from time to time where an employer is liable for injuries to its employees and can be sued. Some examples of such situations are:

• Claims for injuries or diseases not covered by state workers compensation laws
• Intentional tort claims
• Third-party over actions
• Consequential injuries to an injured employee's family members, such as loss of services or loss of consortium
• Dual capacity claims, in which an employer is responsible not as the employer but in a separate capacity such as the manufacturer of the product that caused the employee’s injury.

The commercial general liability coverage form specifically excludes coverage for all these situations and loss exposures but coverage is available under employers liability insurance. This coverage is part of the workers compensation policy and applies in addition to coverage for payment of 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 established by the state fund. Injuries, disease, wage loss and related items are covered but the employer's other liability exposures indicated above are not.

Related Article: Workers Compensation Monopolistic State Funds provides additional information on this subject.

ENDORSING THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

One approach to providing Stop Gap or Employers Liability Coverage is to endorse the Workers Compensation And Employers Liability Insurance Policy itself in one of two ways:

• If the insured employer has operations in only a monopolistic state, the Workers Compensation And Employers Liability Insurance Policy can be issued to provide Employers Liability Coverage and nothing else. This is done by adding WC 00 03 03 B–Employers Liability Coverage Endorsement and indicating the state or states where employers liability coverage applies and where workers compensation coverage is excluded. It can be used in every monopolistic state except Ohio where WC 34 03 01 B–Ohio Employers Liability Coverage Endorsement is used. In other words, a stand-alone Workers Compensation And Employers Liability Insurance Policy can be used to provide only employers liability coverage.
• If the insured already has a Workers Compensation And Employers Liability Insurance Policy in force covering operations in other states, Employers Liability Coverage can be added for just the monopolistic state or states using the endorsements indicated above.

Both endorsements are fairly simple. They both clearly state that Part 1–Workers Compensation Insurance does not apply and that only Part 2–Employers Liability Insurance applies in the states indicated on the endorsement schedule.

WC 00 03 03 B–Employers Liability Coverage Endorsement has two additional employers liability exclusions:

• Coverage does not apply to bodily injury to any member of the flying crew of any aircraft.
• There is no coverage for bodily injury to an employee when the insured is deprived of common law defenses or is subject to penalty because the employer failed to secure its obligation under the workers compensation law in the state indicated on the endorsement schedule.

WC 34 03 01 B–Ohio Employers Liability Coverage Endorsement has an additional exclusion to those in WC 00 03 03 B. 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.

INSURANCE SERVICES OFFICE (ISO) STOP GAP–EMPLOYERS LIABILITY COVERAGE ENDORSEMENT ANALYSIS

ISO developed Stop Gap Coverage forms that could be attached to the Commercial General Liability Coverage Form in 2004. A separate form is available for each monopolistic state. The following is an analysis of the common features of the forms based on CG 04 41-Stop Gap–Employers Liability Coverage Endorsement–Ohio.

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

• Bodily Injury By Accident–Each Accident
• Bodily Injury By Disease–Aggregate Limit
• Bodily Injury By Disease–Each Employee

The 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 for damages due to bodily injury by accident or disease to an employee covered by this insurance. It also has the right and duty to defend any legal action filed against the insured seeking those damages but this obligation does not apply to any action for damages this insurance does not cover. The company also reserves the right to investigate accidents and settle suits arising from them. It does not pay more than the limits indicated above for damages. Its defense obligations end 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 only to bodily injury by accident or disease that occurs during the policy period, in the coverage territory, arising out of and in the course of the covered worker's employment by the insured, and involving an employee subject to the workers compensation law of the state where the incident occurred. In addition, bodily injury by disease must be caused or aggravated by the insured's employment conditions. The injured employee's last day of last exposure to the conditions that cause or aggravate the bodily injury by disease must also occur during the policy period.

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

• Cases where the insured is liable to a third party because of a legal action filed to recover damages claimed against that third party resulting 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 disease arising 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:

a. Intentional Injury

This is bodily injury by accident or disease the insured intentionally causes or aggravates. It includes bodily injury by accident or disease that results from an act the 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 insured.

c. Statutory Obligations

These are obligations imposed on the insured employer under workers compensation, disability benefits, unemployment compensation, and similar laws.

d. Contractual Liability

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

e. Violation Of Law

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

f. Termination, Coercion Or Discrimination

These are damages caused by, resulting from or arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against, or termination of any employee. It includes similar conditions due to and arising out of the insured's other employment or personnel decisions.

g. Failure To Comply With Workers Compensation Law

This is bodily injury by accident or disease to an employee when the insured is subject to a penalty of some kind 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 disease sustained or caused by any person the insured knowingly employed in violation of any law pertaining to age, or by any person less than 14 years old, 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 Employer's 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 of 1969
• The Migrant And Seasonal Agricultural Worker Protection Act
• Any other workers compensation, unemployment compensation, disability or similar law.

j. Punitive Damages

This also includes multiple and exemplary damages.

k. Crew Members

This is bodily injury by accident or disease to the master or members of the crew 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 indicated on the declarations. Even though only one type of entity can be selected for each named insured, multiple types of entities can be selected in the event of multiple named insured's. Each type of entity has a 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 the named insured as well as the named insured's spouse. However, this is not an all-inclusive situation. Their status as named insureds is limited to the 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 the operation 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 the 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, the 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:

• The limits indicated on the endorsement schedule are the most paid, regardless of the number of insureds, claims made, legal actions initiated, or persons or organizations making claims or initiating legal action.
• 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.
• 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.
• The limit for Bodily Injury By Disease–Each Employee, subject to the Bodily Injury By Disease–Aggregate Limit, 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 consisting of less than 12 months, starting with the inception date of the policy, unless the policy period is extended after policy issuance for another period of less than 12 months. If that happens, the additional period is considered part of the previous period for determining insurance limits.

E. Section IV–Conditions, 2. Duties In The Event Of Occurrence, Claim Or Suit, is replaced by the following:

• The 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.
• If legal action is initiated, the 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.
• The insured must immediately send the insurance company any legal papers received that involve an injury, claim or suit and authorize the insurance company to obtain records and other information. It must also cooperate with the company and assist it to the extent required in investigating and settling claims and defending legal actions. The insured must also assist the company in enforcing 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.
• The insured may not voluntarily make any payments, assume obligations or incur any expenses, other than for first aid, without the company's consent, except at its own expense.

F. Definitions, Paragraph 4, Coverage territory, is replaced with the following:

Coverage territory 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 insured's business, if the insured is responsible for paying damages in a suit on the merits according to the substantive law in such territory, or in a settlement the insurance company agrees to.

G. Three definitions are added to the Definitions Section:

• Workers Compensation Law is the workers compensation and occupational disease law of the state involved, excluding laws that apply to non-occupational disability benefits.
• Bodily injury by accident includes bodily injury, sickness, disease or death resulting from an accident. A disease must result directly from bodily injury by accident.
• Bodily injury by disease means a disease, including resulting death, sustained by a person. It does not include disease resulting directly from an accident.

H. The definition of bodily injury does not apply.