10/5/2012
WHY AGENTS, UNDERWRITERS &
AUDITORS APPROACH WORK COMP
DIFFERENTLY
Christopher J. Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA,
CRIS, AINS
Director of Education – Insurance Journal Academy of Insurance
AGENDA FOR THIS SESSION
Part I: Employer (and Insurer) Responsibility in
Workers’ Compensation
Part II: What Happens When the “Alternate Employer
Endorsement” Isn’t Used
PART I: FOR WHOM IS THE EMPLOYER
RESPONSIBLE
“It Depends on…”
 Entity Type:
 Statutes:
 Relationships:
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ENTITY TYPE AND “EMPLOYEES”
 “Employees”
must be protected by WC
 Discover who is an “employee” by knowing who the
employer is.
 All employers are “Persons”
 Natural person employers
 Legal person employers
STATUTES AND “EMPLOYEES”
Forty-four states mandate who is
responsible for whom in a sub-contract
relationship
Not limited to the construction industry
RELATIONSHIPS LEADING TO
“EMPLOYEE” STATUS
 “Independent Contractors” or De Facto
Employees
 A “special” relationship (aka: “borrowed
servant”)
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THE MAIN PROBLEM
Failure to learn of all these relationships!
ACORD application only asks for limited
information
Proprietary application may not be any
broader
AUDITOR’S QUEST
Develop key questions based on:
 What the insured does
 The entity type
Develop procedural questions regarding:
 The use of “non employees”
 COI management
REMEMBER!!
Agents may not know to ask for the
information you desire!
Underwriters may not ask!
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WHAT IS THE RESULT??
YOU!!! (your employer) will be
responsible for paying workers’
compensation benefits to an individual:
 You were not aware existed
 For whom you collected NO premium
PART II: WHAT HAPPENS WHEN THE
“ALTERNATE EMPLOYER
ENDORSEMENT” ISN’T USED
A “Borrowed Servant” is:
 A worker under the ‘absolute right of control’ of an entity
that is not his direct employer.
 Present when an “employer” beyond or in addition to the
direct employer can be held financially responsible for a
worker’s injury because the relationship between the
“employer” and worker involves control over activities at
some level.
A “BORROWED SERVANT” IS
CREATED BY CONTROL
Notice that a “borrowed servant” is a special
relationship not created by a direct contract of hire
or statute.
Created almost exclusively by the right of control.
Eleven (11) “tests” to prove “right of control”
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THE 11 TESTS
1.
2.
3.
4.
5.
6.
The entity controls the manner in which the work is performed;
The place of performance is delineated by the entity or person;
The time of performance is mandated;
Details of the performance are mandated;
The supervisor is a direct employee of the employer who hired the
worker;
The work is being done exclusively for the entity that hired the
worker;
If these first six point towards a “borrowed servant” / special employer
relationship, we move to the next five!
THE 11 TESTS – CONT’D
7.
The presumed special employer has the right to discharge the worker;
8.
The special employer has the obligation of paying the worker;
9.
The direct employer “terminated” the relationship with the worker;
10. The presence of a contract or other special documentation; and
11. The lent employee is a specialist (a “negative” test).
RESPONSIBILITY FOR THE
“BORROWED SERVANT”
Special employers owe the same duties of
protections to their special employees (“borrowed
servants”) as is owed to direct employees
The “putative” employer must provide workers’
compensation protection to their “borrowed
servants” unless the direct employer extends
coverage
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WHO PROVIDES COVERAGE
No proof beyond the contract that the direct employer is providing
protection:
 Dual employment may exist (depending on the state)
 Both parties may be called upon to respond
 You may have a reasonable argument to charge for the “borrowed servant”
Alternate Employer Endorsement attached to the direct employer’s
policy:
 It’s clear who is responsible for providing benefits
 Limits Work Comp recovery to the direct employer
 You should not charge the “Special Employer” for the “borrowed servant”
COMMON “BORROWED SERVANT”
SITUATIONS
Temporary staffing operations
Property management firms
Employee hired by direct employer to work exclusively at a
special employer’s location or job site(s)
Contractual relationships between GCs and subcontractors
(“insured contract” definition)
BOOKS PUBLISHED
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10/5/2012
CONTACT INFORMATION
Christopher J. Boggs, CPCU,, ARM, ALCM, LPCS, AAI, APA,
CWCA, CRIS, AINS
Director of Education – Academy of Insurance
800-897-9965 x137
[email protected]
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