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Every adjuster is taught that there are two parts to the standard workers' comp policy; Part I (or part A), which is statutory workers' compensation coverage, and Part II (or Part B) which is employers liability coverage.

Part I of the policy is straightforward. This is state (or federal) mandated coverage for employees who may be injured or sustain some type of deleterious condition arising out of and in the course and scope of employment. There are five species of indemnity benefits (TTD, PPD, TPD, PTD, and Death), the amount and duration of which are prescribed by the state, and unlimited medical benefits to treat the injury or condition that is deemed to be work-related.

Part II of the workers' comp policy (employers' liability) protects businesses against tort lawsuits that are filed due to employment-related injuries or illnesses, and deaths. The lawsuits can come from the employee, his/her family members, relatives and third parties. The insulating characteristics of statutory workers' comp as an exclusive remedy do not always obtain in the face of particular fact patterns, where a tort action may be upheld by the court.

The employers' liability portion of the policy (Part II) provides additional coverage above and beyond statutory workers' comp. In some instances, employees who are injured due to an employers' negligence can pursue their employer for tort compensation even while collecting standard workers' comp benefits. However, employers' liability will not provide cover against claims such as wrongful dismissal, sexual discrimination, liability assumed under contract, etc. That is altogether another area of exposure, not covered under any part of the workers' comp policy.

In practical terms, employers' liability covers employers against claims made by employees for work-related accidents, injuries, illnesses or deaths. Part II of the policy protects employers from legal liability arising out of an employee injury or death, which isn't covered by Part I of the workers' comp policy. Employers' liability is underwritten on a per occurrence basis. A distinguishing factor with this type of coverage is policy limits. Whereas Part I of the policy is statutory coverage (unlimited), the employers' liability section of the policy has specific limits like any other liability policy.

In the event that a tort action is filed against an employer by an employee, the investigation to determine if there is any merit to the suit is materially different from a standard workers' comp claim. In the latter, the adjuster is seeking to determine if an accident or condition arose out of and in the course and scope of employment. In the former, an investigation must be mounted to determine if there is any negligence on the part of the employer that would allow a court of competent jurisdiction to sustain the action.

In most claim departments, employers' liability claims are not handled by workers' comp adjusters. They are either handled directly by a Home Office Unit, or by the Liability Department. The investigation strives to determine if there was a duty owed on the part of the employer, if that duty was breeched, if there was an injury, and if the proximate cause of the injury was the breach of duty. In other words, a liability style of investigation must be conducted, rather than a compensability investigation. However, whoever is assigned this type of investigation had better know the subject matter, because an employers' liability action has several different characteristics from a standard liability investigation. A critical necessity is having a thorough understanding of the employers' liability jurisprudence extant within the jurisdiction where the action was initiated.

So what are typical fact patterns that will usually result in the court sustaining an employers' liability action? There are several situations where this can transpire. Below are the most prominent examples.

* Dual Capacity Suits: This occurs when the employer is also the manufacturer of a piece of equipment that failed and caused the injury. Therefore, the employer is liable as both employer (Part I) and manufacturer (Part II).

* Breach of a Non-Delegable Managerial Duty: For example, having fire exits blocked with material resulting in death or injury of an employee.

* Third Party Over Actions: This occurs when a lawsuit is filed by a third party seeking indemnity because it was held responsible or liable for an employee's injury (for example, machinery that was not properly maintained by the employer, which caused the injury, but then the employee files a third party action against the manufacturer for a liability recovery in addition to the statutory WC benefits).

These situations are obviously not part and parcel to any standard statutory workers' comp claims training or standard liability investigations. Additionally, employers' liability actions are not ubiquitous enough to train a staff on what amounts to investigatory aberrations. However, when these suits do arise, they had better be assigned to technicians who understand the technicalities and legal landscape of the jurisdiction.

It has been my observation over the years that more often than not, these types of claims will result in expensive defense attorney bills. Many claims people, being unfamiliar with the finer parts of adjusting this type of loss, will assign the case out immediately to a defense firm, and virtually abandon the case to the lawyers. They can treat these losses as if they will be infected by the bubonic plague if they handle them. That is never a good way to adjust a claim, but it is understandable how this can occur with employers' liability cases in view of the relative paucity of claims experience even industry veterans have in this sphere.

Of course, any organization that underwrites workers' comp policies should have a codification of claim procedures in the event an employers' liabiliyt action materializes. Written procedures are formulated to prevent a claim from spinning out of control as the result of abandonment. However simply having a written procedure assures nothing if people do not know it exists, or are unfamiliar with the details. Usually, this becomes manifest when a case implodes, and a post mortem is completed to determine how the situation transpired. This is the proverbial "a day late and a dollar short" scenario.

The moral is to know that employers' liability exposures exist with every workers' comp policy, and have a well thought out procedure for dealing with them when and if they arise.

March 18, 2013

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