Contracts and agreements are part of every business.
Sometimes in deals between two or more entities, one party agrees to not hold the other liable or responsible for paying for legal actions or claims. Certain contracts require protections and/or rights of one party to be extended to the other.
Tiny’s Timber has a crew of 10 employees and contracts with paper mills to survey tracts of timber.
Attorneys have advised Peoples Paper Mill of a potential liability exposure in the event one of Tiny’s workers experiences a workplace injury while performing work for Peoples and included in the contract with Tiny’s a requirement for a Waiver of Subrogation to be included on Tiny’s workers’ compensation insurance policy.
Without the Waiver, Peoples will not do business with Tiny’s.
Smartest Staffing provides temporary workers to many companies in the area.
Mighty Mufflers has a short-term need for extra warehouse workers and contacts Smartest to find out if they have eligible workers.
Smartest has 15 qualified workers who can be available in 24 hours.
Mighty is ready to engage if Smartest can provide proof that an Alternate Employer Endorsement in favor of Mighty is included on Smartest’s workers’ compensation policy. In other words, Mighty wants to be covered as if it were an insured (an alternate/additional employer) on Smartest’s policy.
Subrogation – The assumption by a third party (such as an insurance company) of another party’s legal right to collect a debt or damages.
If someone else causes an accident in which you are injured, you have the right to seek reimbursement of your monetary loss. If your insurance company has compensated you for the loss, it may sue the at-fault entity to recover payments for the loss.
In other words, it may “subrogate” against the party responsible for the loss.
If you agree to (sign) a contract including a waiver of subrogation, you waive your rights and the rights of your insurance company that pays for a claim the ability to recover that money from the at-fault third party with whom the contract is written. In most cases, the entity requesting a waiver of subrogation will require you to include a waiver of subrogation form (or endorsement) on one or all of your insurance policies.
A waiver of subrogation prevents third-party damages for payments made on an insurance claim.
Waivers of subrogation are commonly used in commercial automobile, property, and general liability as well as in workers’ compensation insurance.
In workers’ compensation insurance, there are costs associated with medical treatment, lost wages, and rehabilitation for workers injured in the course and scope of their employment. Nearly all businesses employing others are required by law in most states to purchase workers’ compensation insurance.
When contracts are presented to an employer (a business) with waiver of subrogation clauses, the business owner should contact their legal counsel. In some instances, the business owner may be able to negotiate the contract to remove the wording. If not, or if the business owner agrees to the waiver, they should also check with their insurance agent to confirm their insurance policies will support the contract language by adding a Waiver of Subrogation form/endorsement to their commercial insurance policy(ies).
Workers’ compensation laws are state-specific—each state has its own law/act addressing workers’ compensation insurance rules and regulations.
Concurrently, the ability for businesses to enact workers’ compensation waiver of subrogation clauses in contracts and/or for insurance companies to agree is mandated at the state level.
In Florida, state statute allows waivers of subrogation and case law supports an insurance carrier’s right to waive subrogation.
In Alabama, the workers’ compensation act neither includes nor excludes an employer’s or carrier’s right to agree to waivers of subrogation.
Kentucky asserts that it is unlawful for one employer to require another employer to waive its rights of subrogation by contract and insurance carriers are prohibited from adding waiver of subrogation endorsements to workers’ compensation insurance policies.
Specific waivers of subrogation mean that one party agrees to give up its rights to sue one individual or entity for their costs related to incidents where the specific individual or entity could be construed to be responsible.
For instance, Tiny’s Timber agrees by contract to waive subrogation rights of Peoples Paper Mill. Tiny’s also performs work for Larry’s Lumber Yard and Millennial Mill but has not waived subrogation rights with them. In this case, Tiny’s insurance agent advises that a “Specific” Waiver of Subrogation endorsement on Tiny’s policy will provide appropriate coverage according to the contract.
Blanket waivers of subrogation give up rights to sue any/all for whom a business has agreed to waive such rights.
For instance, Tiny’s has contracts with Peoples, Larry’s, Millennial, and Wonder Woods with waiver of subrogation clauses in all of them. Tiny’s asks his insurance agent to make sure his workers’ compensation policy provides proper coverage, so the agent asks Tiny’s insurance company to add a “Blanket” Waiver of Subrogation.
Not all workers’ compensation insurance companies, even when allowed by law, will agree to waivers of subrogation.
That’s why it’s important for agents to recognize the needs of their insureds and make sure the carrier(s) with whom they place coverage can satisfy requirements.
Insurance companies that do provide them may only allow Specific waivers. Others may allow both Specific and Blanket.
Either way, there will typically be a cost for adding the endorsement(s); another reason conversations between the agent and the insured and the agent and potential carrier(s) is essential.
We will not enforce our right against the person or organization named in the Schedule. (This agreement applies only to the extent that you perform work under a written contract that requires you to obtain this agreement from us.)
This agreement shall not operate directly or indirectly to benefit anyone not named in the Schedule.
Schedule
Note:
In its simplest form, an employer is an organization or individual that/who employs others—more specifically, a company or person that provides a job paying wages or a salary to one or more people.
Sometimes a business will need additional workers to complete a short-term or special job, or they may have several new long-term positions but not enough time/resources to search for the right candidates. These businesses often turn to an employment (staffing) agency to fill these needs.
As the employer, the staffing agency’s workers’ compensation insurance protects them from lawsuits filed by injured employees, but does not provide coverage for the client company should they be sued by an injured temporary/special (temp) employee; coverage is only provided for the business named on the policy.
The business (client company) to whom temps are provided carriers workers’ compensation insurance, but coverage is limited to their direct employees, not temps.
Without a solution, the client company has an exposure that could prove devastating should they have to pay out-of-pocket for such lawsuits.
The National Council on Compensation Insurance (NCCI) has provided a means to mitigate the risk to client companies by extending coverage to them on staffing agencies’ workers’ compensation policies.
By attaching an Alternate Employer Endorsement to the staffing agency’s policy, the client company is named as the “Alternate” employer. This endorsement may also be added to a staffing agency’s policy on a “blanket” basis to cover “any” or “all” client company(ies).
A copy of the current NCCI endorsement language follows. When using the endorsement make sure item 2. State of Special or Temporary Employment of the Schedule is included on the workers’ compensation policy information (declaration) page as a covered state.
NCCI Alternate Employer Endorsement-WC 00 03 01 A (Effective February 15, 1989)
This endorsement applies only with respect to bodily injury to your employees while in the course of special or temporary employment by the alternate employer in the state named in Item 2 of the Schedule. Part One (Workers Compensation Insurance) and Part Two (Employers Liability Insurance) will apply as though the alternate employer is insured. If an entry is shown in Item 3 of the Schedule the insurance afforded by this endorsement applies only to work you perform under the contract or at the project named in the Schedule.
Under Part One (Workers Compensation Insurance) we will reimburse the alternate employer for the benefits required by the workers compensation law if we are not permitted to pay the benefits directly to the persons entitled to them.
The insurance afforded by this endorsement is not intended to satisfy the alternate employer’s duty to secure its obligations under the workers compensation law. We will not file evidence of this insurance on behalf of the alternate employer with any government agency.
We will not ask any other insurer of the alternate employer to share with us a loss covered by this endorsement.
Premium will be charged for your employees while in the course of special or temporary employment by the alternate employer.
The policy may be canceled according to its terms without sending notice to the alternate employer.
Part Four (Your Duties If Injury Occurs) applies to you and the alternate employer. The alternate employer will recognize our right to defend under Parts One and Two and our right to inspect under Part Six.
Rarely is a business immune from contracts.
Often agreements involve extending coverage to or protecting others from scenarios that could cost either party significant financial loss.
Identifying potential exposures and understanding methods to mitigate damages is vital to good risk management.
If you have questions about Waivers of Subrogation, Alternate Employer Endorsements, or other workers’ compensation issues, contact an AIA professional. We’re ready and willing to help you find the answers you need.