Municipalities regularly lease or extend permits to individuals or entities requesting the use of space in jurisdictionally-owned or maintained buildings, parks or streets. The list of desired municipal-space usages can range from business use, to celebratory purposes all the way to personal use. Fairs, parades, road races and marathons, fireworks shows, conventions and even weddings and birthday celebrations are all possible uses of city and county space.
Some jurisdictions may freely lease the requested space without first checking and getting proof from the lessee or renter that proper workers’ compensation protection is in place; choosing rather to transfer the municipalities’ exposure through contract. The municipality may also choose to waive the workers’ compensation requirement due to complaints about the price of coverage or because the individual or entity does not have employees or enough employees to require the coverage. Jurisdictions that depend on contractual risk transfer to manage their workers’ compensation exposure, or waive the requirement outright can find themselves with an unexpected workers’ compensation claim.
Contractual risk transfer is a viable option only when the individual or entity accepting the risk has ample financial resources to pay any claim for which they have accepted responsibility. If an individual or entity is found to be the injured individual’s legal employer, and there is no workers’ compensation protection, any benefits statutorily due to that individual will have to be paid out of the legal employer’s personal or corporate resources. Granted, some states do not require workers’ compensation protection until a certain threshold number of employees is crossed; but there are only 13 “threshold” states. Thirty-seven states and the District of Columbia require workers’ compensation if there is but one employee.
Being an “employer” does not require an offer of employment and/or traditional working conditions. An employer-employee relationship can be created in several ways:
- Traditional employment situations (de facto employment);
- General contractor/sub-contractor relationships;
- “Legal” employer-employee relationship (de jure employment); and
- Borrowed servants.
Non-traditional employer-employee relationships are generally created by: 1) statute; or 2) control of the worker’s actions as defined by common law. Forty-four states and the District of Columbia statutorily address the general contractor/sub-contractor relationship; making the general is responsible for the employees of an uninsured subcontractor. “De jure” employees and borrowed servants are created based on the control the de jure employer exercises over the workers. An in-depth discussion of these topics is outside the intended scope of this article.
Cost is an objection that may be hard for the municipality to dispute; especially if they consider themselves adequately protected by other means (contract and/or the lessees’ lack of a perceived employer/employee relationship).
It’s easy to see why the workers’ compensation protection issue isn’t pushed harder by most municipalities. Will a town ask its citizen to provide workers’ compensation for his family reunion? He isn’t very different from any other commercial tenant. Under a long term lease he would need to furnish proof of coverage. Although the family-reunion renter may not consider his preparations as performing “work”, his arranging for catering, entertainment, decorating or other services for the event may create a legal employment relationship (depending on the contracts between him and the contractors) or even a general contractor relationship (it’s more likely, though, that each “trade” will be considered independent contractors rather than sub-contractors).
Contractors and their employees may disagree with being classed as an “independent contractor” if an injury or death occurs for which there is no protection or benefits. They will look for coverage somewhere. Courts, in an attempt to protect the injured party, sometimes make it easy to overstep boundaries separating independent contractors, sub-contractors and employees. The degree of control may be the deciding factor; simply telling the workers what time to be there and what to put where may be enough “control” to blur the line.
When the status isn’t clear, people may look to the city for coverage if the renter does not have and cannot provide the necessary protection. Liability tends to climb the ladder until it reaches the level at which someone can pay; improper lower tier coverage becomes a real concern for municipalities at that point.
Sovereign immunity does not protect the jurisdiction. And if coverage is not available under the municipality’s workers’ compensation policy, coverage will likely be sought in the general liability (GL) and/or umbrella/excess coverage.
Vicarious liability is the “coverage ‘trigger’ of concern” under GL and umbrella policies. Vicarious liability arises from one person’s or entity’s responsibility for the actions of others due to relationship or legally-imposed duty (i.e. ensuring that all “workers” are protected by workers’ compensation). Municipal contracts usually require workers’ compensation, so the argument could be made that they are aware of the risk in advance.
Public entities should always insist that workers’ compensation coverage be provided by all lessees and renters – regardless of length of occupancy or purpose of use. Resistance is and should be expected when such requirement is put in place; but the risk for the municipality in the absence of such requirement is too great to ignore.
However, an alternative to workers’ compensation in many if not most states is the combination of an Occupational Accident policy and Contingent Liability coverage. Though policy language may vary, occupational accident forms generally cover certain claims arising from a work-related injury or death for a specified period. Contingent liability protection responds the same as a workers’ compensation policy if a contractor or other worker is deemed to be an employee of the policyholder. Where allowed, the jurisdiction should be named as additional insured and get a copy of the endorsement with the certificate of insurance.
Because of the limited benefit period, occupational accident coverage is usually more affordable than workers’ compensation, and because Contingent Liability only steps in if a worker is deemed to be an employee, its cost is usually lower as well. Some insurers offer these coverages on a short-term basis, translating into even more savings for the citizen holding an event on municipal property.
The two main objections raised by citizens against the purchase of workers’ compensation are answered by this combination of coverages. The price is comparatively low and this pairing is designed for non-employees.
(Some information for this article taken from ” The Insurance Professional’s Practical Guide to Workers’ Compensation: From History through Audit” available from Insurance Journal)
Lorna Greenwood, WCS, CRM, CIC, CISR, ACSR a Program Manager at U.S. Risk Underwriters, Inc. in Dallas, Texas has over 15 years in the insurance and risk management industry.
Greenwood has an additional ten-plus years of experience in real estate portfolio management, there she gained additional business insight and expertise as trustee and fiduciary in governmental negotiations and in civil legal proceedings, e.g. solidly gaining property possession and clear title without benefit of counsel. Active in volunteering, she has served on the board of a local non-profit organization for the betterment of at risk girls and young women and is active in a variety of community service projects.
