The National Council on Compensation Insurance's (NCCI) 1991 edition of the workers' compensation and employers' liability policy lists 12 specific exclusions applying to Section Two - Employers' Liability Insurance. Each of these exclusions is listed below and several are briefly explored in more detail. NCCI's employers' liability exclusions are (contains material copyrighted by the National Council on Compensation Insurance):
• Liability assumed under a contract. As detailed in a previous article, employers' liability for liability to an "outside party" assumed under contract is extended from the commercial general liability policy unless the definition of an "insured contract" has been altered by endorsement. If the CG 21 39 exclusionary endorsement has been attached, the employer's only source of protection is the workers' compensation policy (Part One) covering the medical costs and lost wages of the employee. Any "outside party" liability for an injury to an employee contractually transferred to the insured will have to be paid out of the insured employer's pocket.
• Punitive or exemplary damages arising from an employee employed in violation of law. Neither Part One - Workers' Compensation Insurance nor Part Two - Employers' Liability Insurance will cover the cost of any court-prescribed penalties or punishment arising out of an employee injured while illegally employed. The workers' compensation coverage part has to pay normal benefits, just not additional benefits imposed by the courts.
• Any bodily injury to an employee while knowingly employed by the insured in violation of the law. Part One - Workers' Compensation coverage will pay the statutorily required benefits (but no more) to any "employee" injured, even if such person is working in direct violation of the law with the full knowledge of the insured. However, the employers' liability part specifically excludes any coverage for illegal employees.
• Any obligation imposed by a workers' compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law. If the injury or loss is covered or supposed to be compensable under the workers' compensation policy, unemployment compensation policy or other such law it is not covered under employers' liability part.
• Bodily injury intentionally caused or aggravated by the insured. Covered, up to statutory limits, under the workers' compensation part but excluded in this coverage part.
• Bodily injury occurring outside the United States of America, its territories or possessions, and Canada unless the injured employee is a citizen or resident of the United States of America or Canada who is temporarily outside these countries. Coverage is excluded for foreign nationals working outside of the coverage territory. Domestic employees working outside the coverage territory on a temporary basis are covered.
• Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts or omissions. This is an Employment Practices Liability exposure covered under another policy type; besides, there is not necessarily any bodily injury arising out of these claims.
• Bodily injury to any person in work subject to the Longshore and Harbor Workers' Compensation Act (33 USC Sections 901-950), the Non-appropriated Fund Instrumentalities Act (5 USC Sections 8171-8173), the Outer Continental Shelf Lands Act (43 USC Sections 1331-1356), the Defense Base Act (42 USC Sections 1651-1654), the Federal Coal Mine Health and Safety Act of 1969 (30 USC Sections 901-942), any other federal workers' or workmen's compensation law or other federal occupational disease law, or any amendments to these laws. The policy can be endorsed as necessary to remove any or all five of these Federal Compensation Act exclusions if such exposure exists. The available endorsements are:
---Longshoremen's and Harbor Workers' Compensation Act Coverage Endorsement - WC 00 01 06A
---Nonappropriated Fund Instrumentalities Act Coverage Endorsement - WC 00 01 08A
---Outer Continental Shelf Lands Act Coverage Endorsement - WC 00 01 09A
---Defense Base Act Coverage Endorsement - WC 00 01 01A
---Federal Coal Mine Health and Safety Act Coverage Endorsement - WC 00 01 02
• Bodily injury to any person subject to the Federal Employers' Liability Act (45 USC Sections 51-60), any other federal laws obligating an employer to pay damages to an employee due to bodily injury arising out of or in the course of employment, or any amendments to those laws. The Federal Employers' Liability Act Coverage Endorsement (WC 00 01 04A) can be attached giving back employers' liability coverage for employees qualifying for protection under Federal liability laws.
• Bodily injury to a master or a member of the crew of any vessel. Two endorsements are available allowing the insured to provide coverage for employees subject to the provisions of maritime law. These endorsements are:
---Maritime Coverage Endorsement (WC 00 02 01A) - This endorsement is used if the insured has no protection and indemnity (P&I) policy.
---Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03) - This endorsement is used to voluntarily extend coverage to employees not normally required to be protected by a workers' compensation policy.
• Fines or penalties imposed for violation of federal or state law. Neither the workers' compensation coverage part nor the employers' liability coverage section will pay any penalties assessed against the insured for violation of laws. Example violations include fines imposed by OSHA or other regulatory bodies for failure to provide a safe work environment or provide and/or require the use of personal protective equipment. These costs will be borne solely by the employer.
• Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act (29 USC Sections 1801-1872) and under any other federal law awarding damages for violation of those laws or regulations issued thereunder, and any amendments to those laws. As above, there is no coverage for employment or employment conditions in violation of applicable laws.
The endorsements listed above will be detailed in the next commentary.
Only four monopolistic states are still in operation: North Dakota, Ohio, Washington and Wyoming. Insureds with on-going operations in one of these states purchase workers' compensation protection from the state but must find an alternate means to secure employers' liability coverage.
Three methods are available to fill this protection gap to which employers operating in monopolistic states are subject.
• Stand-alone employers' liability coverage. Employers domiciled and operating nearly exclusively in a monopolistic state can purchase a stand-alone employers' liability policy from a private insurer. The state funds do not offer this protection.
• Endorsement to the workers' compensation and employers' liability insurance policy. WC 00 03 03C can be attached to an employer's policy operating in a non-monopolistic state with employees working in a monopolistic state and subject to that state's laws. The employer buys a separate workers' compensation policy covering just the employees in the monopolistic state, and then they attach this endorsement to their domicile-state policy, listing the monopolistic states in which employees are involved in on-going operations.
• Endorsed onto the commercial general liability policy. Employers domiciled in non-monopolistic states but with employees in monopolistic states may choose to endorse the commercial general liability policy to extend employers' liability benefits to cover employees working in monopolistic states. As above, the workers' compensation policy is purchased from the state and the commercial general liability policy is endorsed to extend employers' liability protection. Each monopolistic state requires a state-specific endorsement. Some underwriters are unwilling to extend this protection via the CGL (especially if they are unwilling to allow the umbrella to sit over the employers' liability section).
Regardless of which method is chosen, extending employers' liability coverage to employees in monopolistic states is very important. As has been discussed in this mini-series, employers' liability protection fills many gaps between the workers' compensation policy and the protection offered by the commercial general liability policy.
A Word About Limits
Standard limits offered by the employers' liability policy ($100,000 Each Occurrence Bodily Injury, $100,000 Each Occurrence for Employee Disease with a $500,000 Employee Disease Aggregate) are just too low. Remember, this coverage serves to fill the gaps between the workers' compensation policy and the commercial general liability policy.
Workers' compensation coverage is limited only by statute and the commercial general liability protection is generally no less than $1 million per occurrence (sometime higher); so why should the limits of the policy that fills this gap be so low?
Increasing employers' liability coverage limits is relatively inexpensive. Five hundred thousand dollar limits across the board ($500,000 / $500,000 / $500,000) increases the entire policy premium about 2 percent (varies depending on the carrier), and jumping the coverage to $1 million / $1 million / $1 million increases the premium by only around 3 percent over standard. And anytime the umbrella carrier is willing to extend benefits over the employers' liability coverage that opportunity should be taken.
Employers' liability is an important protection the shields employers from losses that would otherwise be excluded. This is the last of the articles on employers' liability coverage. The next article, as stated earlier, will detail some of the endorsements listed above.