Third-Party Action-Over claims are one of the fastest
growing types of claims in contractor’s general liability insurance. In a nutshell, lawyers have figured out a way
to file a claim on your general liability policy for something that should be
covered through your Employers Liability Insurance. The results of these claims
for contractors are higher rates on their liability insurance and potential gaps
in their coverage. The
purpose of this article is to explain how these claims work and educate
contractors on what they can do to protect themselves.
What is Employers Liability Insurance?
Although different from Workers Compensation coverage, Employers Liability is
typically included in your workers compensation policy. It is meant to cover losses that fall outside
of the scope of workers compensation like third-party action-over, dual capacity,
loss of consortium and consequential bodily injury. Unlike Workers Compensation, which is typically
not capped by policy limits, Employers Liability is subject to limits. Key
Exclusion: Standard Employers Liability policies typically exclude coverage
for liability assumed in a contract.
What is Commercial General Liability Insurance?
Commercial General Liability Insurance (CGL) covers bodily injury and property
damage to third parties. It covers
losses that occur on your premises, jobsite or as a result of your products and
completed operations. The
CGL contains and Employers Liability Exclusion and does not cover bodily injury
to employees, with one exception.
Employers Liability Exclusion
Below is a sample of the standard Employers Liability Exclusion in the
CG0001 Commercial General Liability Policy.
As you can see, this type of liability is excluded with one key
exception: when the Employers Liability is assumed in an “insured contract”. To read
more about Contractual Liability and Insured Contracts, check
out this article.
Action-Over Claims Work
- A subcontractor’s employee is injured on the
jobsite. The subcontractor’s workers
compensation insurance pays the employee for his injuries and lost time at
- In addition to filing a claim on the
subcontractor’s workers comp policy, the employee also sues the general
contractor for failure to provide a safe work environment.
- As a condition of the construction contract, the
general contractor is indemnified by the subcontractor and named as an
additional insured on his commercial general liability policy.
- The subcontractors general liability policy must
respond to the claim because although Employers Liability is excluded in his
CGL policy; the exception to the exclusion provides coverage because the
subcontractor’s indemnification agreement with the general contractor is
considered an “insured contract”.
Due to the increase in these types of claims, many general liability insurance
carriers have responded by adding an Absolute Employers Liability Exclusion to
the policy. There are many versions of
this exclusion but they all serve the same purpose of removing the exception to
the standard Employers Liability Exclusion.
The result is that a contractor would not have coverage in the event of
a third-party action-over claim.
In addition to providing a safe work place for all of your employees and
subcontractors, buy a general liability policy that does not include an
Absolute Employers Liability Exclusion. Additionally,
address this type of liability in your construction contracts and
indemnification agreements. Failure to
do so could leave you stuck paying for someone else’s legal fees.
information, please contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net. Or visit www.redhotinsurance.net.