Employers Vulnerable to Associational Discrimination Claims

Most employers are aware of the employee protections found in Title VII of the Civil Rights Act of 1964. Employers may not discriminate against employees on the basis of race, color, religion, sex or national origin. Also, they may not retaliate against employees who have protested against an illegal employment practice or who participated in an investigation or other activities against the employer for an illegal practice.

Further, recent court decisions have applied Title VII’s protections to an employee’s association with another person whose characteristics fall under those protections. The U.S. Supreme Court held in 2006 that employers cannot discriminate against someone closely related to or associated with a person who is exercising protections under Title VII. Two federal courts earlier this year ruled that employers violated the law by discriminating based on association. One allegedly fired a white basketball coach because his wife was African-American; the other allegedly fired an employee whose coworker’s fiancé filed a complaint with the Equal Employment Opportunity Commission.

All employers are vulnerable to these types of accusations, even those who strive to obey the law. Employment practices liability insurance (EPLI) policies cover many types of losses resulting from employee claims. How will they respond to association discrimination claims?

EPLI policies vary somewhat from one insurance company to another, but most provide coverage for acts such as discrimination, wrongful termination, harassment, retaliation, and inappropriate employment conduct. A typical policy covers discrimination against an employee for termination of the employment relationship, demotion, failure to promote, denial of an employment benefit or other adverse action based on a number of characteristics such as color, race, sex, ethnicity, age and religion. It also covers retaliation claims if the employee engaged in a protected activity, the employee suffered an adverse action, and the protected activity caused the adverse action. Because they specifically apply to employees who have these characteristics or who perform protected activities, these policy provisions do not appear to cover actions against employees because of their association with others.

However, the policies usually also cover “inappropriate employment conduct.” Among the acts that may fall within this category are coercion, wrongful demotion, wrongful discipline, retaliatory treatment, and others. The definition of “inappropriate employment conduct” will be different from one policy to another. One insurance company may cover association discrimination while another may not. As such, employers should discuss specific terms of coverage with their insurance agent.

The policies might cover the employer, but not the employee alleged to have committed the act, if a court determines the employee deliberately acted illegally or with intent to harm the other employee. For example, if a court ruled that a supervisor was acting maliciously when he fired an employee for marrying someone of a different race, the insurance might pay for the employer’s defense and liability but not for that of the supervisor.

In this era where job cuts and lawsuits are common, employers face a real exposure to actions against them for the decisions they make. Lawsuits can be costly even if they are groundless; the costs of defending them can mount rapidly. EPLI provided by a financially solid company is an important part of every employer’s risk management program.

EPLI, coupled with a well-executed loss prevention program, will help any employer survive employee accusations.

Tips for Evaluating Contractor’s All Risk Policies

Construction is a high risk industry. Personal injuries and property damage occur frequently, and these events ultimately cost the contractor money. Many times such claims could be covered under a Contractor’s All Risk (CAR) policy.

CAR policies, commonly referred to as Course of Construction or Builder’s Risk policies, insure against physical loss or property damage to works, plant, equipment and materials during the course of construction. Such policies can be complicated so contractors should take care to ensure that any coverage adequately covers the risks of the construction project to be undertaken. Many contractors can be caught short by failing to evaluate their potential liability risks in relation to the policy they are considering.

Here are some important rules to evaluate CAR policies:

* Conduct an insurance audit with a risk manager or broker to determine potential liability and any risk not covered by your current policy.
* Consult with your broker because many insurers can customize the coverage to match the needs of the project. The insurer needs time to do this effectively, so don’t wait till the last minute.
* Take note of exclusions because while most are expressly stated, others can be implied and can radically limit your protection. One frequently implied exclusion is consequential loss relating to loss of profits and expenses as an indirect result of the cause of the claim. Naturally occurring events such as deterioration due to mildew, rust, or obsolescence may also be deemed as implied exclusions.
* Confirm there are no unusual limitations on the measure of damages. The method in which your insurance carrier determines damages can significantly affect your bottom line.
* Carefully consider the period of coverage as it normally only extends to when the contractor is on site and ceases when the client takes possession. Ensure there is extended coverage should problems develop later on.
* Technological changes using business information technology opens many contactors to new risks if they incorporate design management in the construction project. Additionally, construction companies which use BIM also have to consider potential losses due to hacking or data corruption that would not likely be covered under a CAR policy.
* Review the excesses and deductibles to be applied by your insurer to determine if they are reasonable.
* Fully document your damages with the aid of an experienced consultant, as CAR carriers will strive to reduce the cost of damages. Costs stemming from prolongation of the claim may be restricted to maximum excess limitations.
* Use a legal consultant especially when preparing a major claim. They can guide you through any potential red tape and aid in negotiating a proper settlement.

Do You Have Coverage If You Damage a Customer’s Property?

A plumbing contractor’s employee is soldering two lengths of pipe together when a fellow employee asks him to assist with another task for a moment. The first employee lays the soldering torch on a ceiling joist, forgetting that it is still hot. While he is away, the joist begins to smolder, then small licks of flame form and ignite combustible material in the ceiling. By the time someone notices, fire is consuming the ceiling. Firefighters’ efforts to extinguish the blaze cause water damage to portions of the building and walls near the fire’s starting point suffer smoke damage.

The building owner will most likely hold the contractor responsible for the cost of repairing the damage. In turn, the contractor will look to his general liability insurance policy to cover that cost. Will the insurance company pay for the repairs?

The Insurance Services Office’s Commercial General Liability Coverage Form states, “This insurance does not apply to…’property damage’ to…(t)hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations…” What does this mean, and how does it apply to an incident like this one? What does the form mean by the phrase, “that particular part”? Several courts have weighed in on this question.

A Tennessee court in 1975 ruled against an electrical contractor whose employee, while installing circuit breakers in a switchboard, caused a short circuit that destroyed the entire switchboard. The court said that the employee was performing operations on the switchboard, not just the individual circuit, and therefore liability coverage did not apply. Similarly, a Massachusetts court ruled against a cleaning contractor in 1989. The contractor was cleaning the bottom of an underground oil storage tank when an explosion occurred, destroying the entire tank. The contractor argued that the insurance should cover all of the damage except that to the bottom of the tank, but the court ruled that the entire tank was “that particular part” on which the contractor was performing operations.

Conversely, a Minnesota court granted coverage for a contractor that had been hired to clear trees and brush from a construction site but that also cut down trees on an adjoining property. The court said that, while the liability policy would not cover damage to property the contractor had been hired to work on, it did cover damage to the property of a third party. A New York court ruled in 1974 that a liability policy covered damage that occurred after the contractor had completed operations.

The courts have not established firm rules about what constitutes “that particular part” of property on which a contractor is performing operations. Case law will vary from one state to another. Because of this, contractors should discuss the exposure with their insurance agents. To reduce the chances of an uninsured loss occurring, an agent may recommend the purchase of a builders risk or installation floater policy. These policies cover property that the contractor is installing on a construction site while it’s in storage, in transit, on the job site and during installation. They also usually cover property of others for which the contractor may be liable. Unlike the general liability policy, there are no standard versions of these policies, so contractors must review them carefully and ask their agents questions about anything that is unclear.

The law of averages suggests that most contractors will accidentally damage a customer’s property at some point. Now is the time to make sure that there will be no insurance surprises when it happens.

Primary and Noncontributory: What Does It Mean?

Construction contracts often require a subcontractor’s general liability insurance policy to name the owner or general contractor as an additional insured on a “primary and noncontributory” basis. This seemingly simple requirement can cause a lot of difficulty and may hamper the sub’s ability to start the project. The International Risk Management Institute recommends that risk managers not include this requirement in contracts. Insurance agents can add wording to a certificate of insurance only if the insurance company approves it. Insurance companies tend to resist adding this language to their policies and certificates. Why are the words “primary and noncontributory” such a problem?

In liability insurance claims, when two policies cover the same loss, one usually applies on a primary basis and the other on an excess basis. This means that one will pay first (the primary policy), and the other will pay only if the primary policy either does not cover the loss at all or if the amount of insurance is not enough to pay for the entire loss. For example, if the primary policy has a limit of $1,000,000 each occurrence and the amount of the loss is $1,500,000, the primary will pay its limit of $1,000,000 and the other policy, which applies on an excess basis, pays the remaining $500,000.

If both the general contractor and the subcontractor have bought modern editions of the Insurance Services Office’s Commercial General Liability Coverage Form, the subcontractor’s policy is automatically primary. The form’s wording makes the insured’s coverage excess over any policy that has added the insured as an additional insured by endorsement. Therefore, the “primary” part of the requirement is a minor issue.

The “noncontributory” requirement is more of a problem. Most contracts do not define the term’s meaning, and most insurance policies and endorsements do not include it at all. The GC may believe it means that its policy will not pay even on excess basis; if the sub’s limit of insurance is not large enough to cover the loss, the GC may expect the sub to pay the remainder out of pocket.

The standard additional insured endorsement to a general liability policy covers the additional insured with respect to liability for injury or damage caused at least in part by the sub’s acts or omissions. It also covers liability for acts or omissions of those working for the sub. Coverage lasts as long as the sub has ongoing operations for the additional insured. It does not say anything about the additional insured’s coverage being noncontributory. This is the problem: It is not standard insurance industry practice to cover additional insureds on a noncontributory basis. Insurance companies are reluctant to change that, as they want the additional insured’s coverage to contribute toward paying for the loss. A GC has less incentive to prevent losses when it knows that its own insurance will not be needed.

A contractor who runs into this requirement should notify his insurance agent immediately and ask the insurance company to provide the coverage. If it won’t, he must notify the GC and negotiate alternative terms in order to avoid breaching the contract. The GC may agree to accept the standard endorsement with a promise not to reduce its coverage. He should also consider asking the agent to seek this coverage at the next policy renewal. Most importantly, he must understand what the contract requires and ask questions about provisions that are unclear. No one wants to find out after an insured loss that he must pay part of it with his own money.

Five Ways to Control Workers’ Comp Costs

Most businesses are required by law to provide workers’ compensation insurance. It protects employees, providing income and medical care if they’re injured on the job. It also protects employers; the liability portion provides coverage for lawsuits filed as a result of a work-related injury.

As an employer, the amount you pay for workers’ compensation coverage varies according to your industry and claim history. Workers’ compensation insurance for companies that engage in office-based work is generally much less expensive than insurance for industries like construction or trucking.

Regardless of your industry, there are proactive steps you can take to keep workers’ compensation costs under control. Here are some tips:

Thoroughly train new employees: Surveys show that nearly a third of workers’ compensation claims result from accidents involving newly hired employees. Take a look at your orientation program and see if you can improve overall safety by beefing up new employee training.

Make safety a top priority: The best way to keep costs down is to not incur claims in the first place. Create a safety culture throughout the company, and engage employees directly in the effort. For example, you could establish safety councils and solicit ideas from employees on how to create a safer workplace.

Pre-screen employees: Another preventive action you can take is to make sure you hire the right employees in the first place. Statistics show that workers who are substance abusers are far more likely to have an on-the-job accident. An investment in pre-employment drug screening can save a significant amount in claims down the road.

Manage claims proactively: When an employee is injured, make sure you keep tabs on the worker’s condition and plan for their return to work as quickly as possible. In some cases, injured employees can rejoin your workforce on light duty, which can reduce the amount of the claim.

Make sure employees are classified properly: There are hundreds of classification codes used to determine the appropriate level of workers’ compensation coverage. If employees are misclassified, you may not have the coverage you need, and misclassifications can result in fines.

Workers’ compensation is essential to protect your employees ― and your company. To sharpen your company’s competitive edge, it’s important to control costs. Take a fresh look at your company’s approach to safety, hiring, classification and claims management. You may find new ways to keep costs under control.

Driving Risk: When Employees Run Business Errands

Have you ever sent an employee out to pick up needed supplies? Offered to buy lunch for the crew and asked an employee to pick it up? Unless you only send employees who are insured to drive your company vehicles, you may be putting your business at risk. Your business may also incur liability if you travel on company business and have an accident in a rented car while traveling to meet a client or for other business-related purposes.

Why would your business be at risk? Because if there is an accident that causes damage to a third party and the driver’s insurance doesn’t cover the full costs, your company may be sued to recover the excess amount. Employees who use their personal cars are generally required by law to have insurance. But unless you hire them as drivers, you probably have no idea how much insurance coverage employees actually carry ― or even if they have insurance at all.

If you’re traveling on company business in a rental car, you’re probably covered by your personal insurance or by a policy purchased through the rental agency. But if you’re in an accident and cause damage that exceeds the amount of personal coverage you have, an attorney for the injured party would almost certainly seek damages from your company.

The Solution

The good news is that there’s a simple and relatively inexpensive solution: a non-owned auto insurance policy. This type of policy protects your business if an employee gets in an accident and causes damage while running a company errand. It also protects your company if you cause damage in an accident while driving a rental car on company business.

Keep in mind that non-owned auto insurance generally doesn’t cover drivers ― its purpose is to protect the organization. Non-owned auto insurance generally does not function as primary insurance; it is designed as excess liability protection. In other words, if your employee causes damage in an accident while driving a personal car on company business, the employee’s insurance would generally pay first. But if the liability exceeds the amount of the employee’s coverage, non-owned auto insurance would protect your business from being responsible for damage costs not covered by the employee’s coverage.

The Bottom Line

Liability claims caused by vehicular damage can run into the millions of dollars. Your business could be at risk if an employee has an accident while traveling on company business. Your company could also be at risk if you or an employee has an accident while driving a rental car on business. Non-owner auto insurance can provide peace of mind ― and vital protection.

Traffic Accidents May Be Biggest Risk to Employee Safety

The International Association of Industrial Accident Boards and Commissions (IAIABC) discovered that not only are highway vehicles the biggest risk of serious injury to employees, but they are also associated with some of the most costly workers’ compensation claims.

The researchers analyzed injury data from the National Council on Compensation Insurance (NCCI) and the National Institute on Occupational Safety and Health (NIOSH). Their findings revealed that only work in construction, agriculture, and certain natural resource industries caused more employee injuries than vehicle accidents. The data also showed that traffic accidents were the source of a large portion of the total number of serious disabilities and fatalities.

The study categorized injuries by industry and occupation. As an occupational class, truck drivers were found to have a substantially high risk of fatalities; however, they had significantly fewer non-serious injuries. The reverse was true for passenger cars. They were found to have fewer fatalities, but almost double the number of non-serious injuries. The researchers concluded that the size and weight of trucks protect occupants in slower-moving collisions with other vehicles. However, because trucks are prone to jackknifing and overturning, truck drivers are more likely to experience a fatal injury. Besides the high fatality rates, trucker drivers were discovered to have workers’ compensation claims of longer duration and higher average cost.

Other occupational categories that generated a high number of expensive workers’ compensation claims as a result of vehicle accidents were salespersons, messengers, and collectors. It is important to realize that these were actual claims, and not rates of injury per worker. This means that jobs that have traditionally been considered unlikely to cause worker injury carry more risk than originally believed.

The data also indicated that employees involved in vehicle accidents had a significantly higher rate of permanent total disability and workers’ compensation death claims than all other types of claims combined. The average severity of temporary total disability, permanent total disability, and fatality was greater for vehicle claims than for non-vehicle claims.

The predominant cause of injury in workers’ compensation claims resulting from vehicle accidents was neck sprain and neck pain, which accounted for 15 percent of all vehicle claims. However, these claims made up less than two percent of the overall number of workers’ compensation claims.

When examining the cost of vehicle accidents to employers, workers’ compensation payouts represent only a small part of the expense. The Network of Employers for Traffic Safety studied the combined cost of motor vehicle accidents to employers in 2000. The researchers found that medical expenses amounted to $7.7 billion, sick leave, life and disability insurance benefits totaled another $8.6 billion, while workers’ compensation claims costs approximately $2 billion for employers.

Vicarious Liability: Your Employees Could Cost You!

Respondeat superior” is a Latin phrase that translates “let the master answer.” This is legal jargon relating to the breadth of the employer’s responsibility for the actions of his employees. Literally, and in basic terms, any injurious or wrongful act of an employee within the course and scope of his employment creates liability for the employer (the master). This is commonly known as “vicarious liability.”

An employer’s liability for injury or damage caused by employees is considered “vicarious” because the act was not committed by the employer, but by individuals for whom the employer is responsible. Just like a parent is responsible for the actions of a child, even if the parent had no knowledge of what the child was doing, so too is the employer responsible for the employee’s actions.

When crews are spread over several job sites, the employer loses some direct control over the actions of the dispersed employees; however, he is not relieved of his responsibility for the actions or inactions of these workers. The “master” will be required to financially stand up and answer for any injury or damage caused, even though he may not have been aware of those actions.

Within the framework of construction operations, the employer is obviously responsible for any work done incorrectly or poorly. For example, if an employee of a plumbing contractor does not properly cement or solder a pipe, leading to severe water damage from a break at the connection point, the employer is expected to pay for the damages.

Beyond simply being vicariously liable, the employer has the potential to be accused of “negligent entrustment.” Negligent entrustment can be asserted when an employer allows an unqualified person to use a dangerous instrumentality. Construction sites teem with dangerous instrumentalities; from items as simple as nail guns and power saws, to man lifts, grading equipment, and trenching equipment. Employers owe a duty to the employee, others on the job site, and even the general public to affirm an employee’s ability to safely and correctly operate equipment necessary for their job.

To avoid breaching this duty and allegations of negligent entrustment, the employer must test employees to confirm they are adequately trained to operate the equipment they are expected to use. This can be accomplished by observing the employee’s use of the equipment and correcting misuse. Observation and training should be done by a highly trained supervisor or by the supplier. The training must include detailed safety instructions and “what-if” scenarios. Once the employee has been “cleared” to use the equipment, continued observation is necessary to ensure the employee doesn’t become careless.

A common response to recommended training and testing is, “We don’t have time for that.” This may be true, but if you don’t have time to train, do you have time to go to court? Also, do you have the funds to pay the damages? Successful negligent entrustment suits often involve punitive damages that could drastically increase the cost for that particular incident.

Vicarious liability and charges of negligent entrustment aren’t limited to your employees. You may also face liability for the actions of entities or individuals to whom you sub-contract work. Making sure you hire qualified and properly insured subcontractors is of vital importance.

You, as the saying goes, are your employee’s keeper. Not due to lack of trust, but because you are ultimately responsible for the results and consequences of their actions. Choosing, training, and monitoring your employees and subcontractors will allow you to avoid or at least minimize many of the potential problems.

Limiting Your Liability for Summer Employees

According to the U.S. Department of Labor, 2.3 million workers between the ages of 16-24 years of age were hired for summer employment. On average, one of these summer employees will be injured on the job every five seconds. Most of these work related injuries are both needless and costly to the employer.

The three main causes for the majority of these injuries are due to inexperience, lack of training and inadequate supervision. There are a number of proactive steps that employers can take to limit their exposure and reduce their liability.

Steps to Take Beforehand

Business owners would be wise to develop safe working practices for summer help. Here are some simple but practical steps you can employ to reduce your costs from job related injuries this summer:

  • Ask yourself what hazards the summer worker will be exposed to, including any pertinent risks outside the immediate working area.
  • Consider carefully the personnel who are to be involved in the training process and ensure they are well versed in the training procedures.
  • Always try to assign an experienced worker as a supervisor and ensure they keep a watchful eye on the summer worker over the first several days.
  • Make sure that any equipment to be used is examined and operational beforehand. Ensure that all legally required equipment safety guards are in place.

Take the Time to Give an Adequate Safety Orientation

Even before on the job training begins, give all your new staff a safety orientation. Here are some of the most important points to cover:

  • Appoint someone to act as a safety coordinator to explain the applicable federal and state safety laws.
  • The safety representative should stress and encourage new employees to ask questions about any aspect of the job they don’t understand.
  • Ensure that your summer workers do not hesitate to report unsafe conditions or hazards and to whom.
  • Stress that newly hired workers should not engage in any job activity where they haven’t been properly trained. Emphasize that they must always think safety first.
  • Inform new workers not to leave there work area unless they’ve been told to do so. Describe and show the locations of first aid kits, emergency alarms and exits, fire extinguishers, emergency alarms, eyewash stations, and how and where to obtain medical help.
  • Instruct all workers using hazardous equipment or processes to always use required protective gear such as gloves, hearing protectors, safety visors, and hard hat or safety shoes.

Provide Thorough Training

By taking the time to train your summer workers with good training techniques, you can dramatically reduce the risk of injuries. Here are few points to keep in mind:

  • Assign an experienced worker to give the worker their full attention until fully trained.
  • Provide detailed instructions on how to perform all aspects of the job and encourage them to ask questions.
  • Demonstrate how each task should be performed and repeat it until understood. Observe how the worker performs the task and correct any mistakes.
  • Teach the worker how to properly lift heavy items, use ladders safely and how to avoid injury from activities involving repetitive actions.
  • Monitor the worker’s progress in the first few days as this is the time when most injuries occur.

By being proactive in orienting your summer workers, you can greatly reduce your liability exposure to work related injuries. Training takes a little time but it’s time well spent.

Identifying Environmental Exposures Is Critical to Managing Risk

Environmental claims are often unpredictable and despite the fact that associated liabilities can easily cripple a business, most contractors underestimate their potential magnitude. Without sufficient insurance protection, the consequences of such claims can range from costly business interruption to bodily injury and/or property damage lawsuits. The best way to account for this unpredictability is to manage the risks that can lead to environmental claims.

The only way to develop an effective risk management strategy is by conducting a thorough site pollution assessment to determine the various levels of exposure.

Time is a critical factor in this type of assessment. Exposures can exist from both past and future pollution release events. Of the two, past exposures can be more easily qualified and managed. Commonly referred to as “legacy exposures,” these previous events are the known/unknown issues associated with the history of a site. Some typical legacy exposures include:

  • ·         Accumulations of small discharges
  • ·         Inappropriate storage and handling practices
  • ·         Poor structural integrity
  • ·         Use of pesticides and herbicides

Legacy exposures may be currently dormant, but can re-emerge during site development, or operation expansion. They can even remain inactive on the property being developed while surfacing in neighboring properties. Such exposures could also be former release events that posed minimal risk initially, and required little remediation. However, now they require additional cleanup. Or the added remediation of these events could also be the result of a change in regulatory standards.

The second level of exposure results from the possible future occurrence of a pollution release event. Known as “operational exposures,” these risks can trigger a major cleanup effort, as well as bodily injury and property damage loss. These events can be sudden and easily identified, or they can be the outcome of a gradual process that has gone unnoticed.

The preferred way to manage these exposures is by transferring risk via an environmental insurance policy.  Environmental insurance should be part of the risk management strategy of real estate owners, facility operators, and any other party with a financial interest in a site. An environmental policy can be written to cover only legacy concerns for transactions where there is a risk transfer from seller to buyer. It can also be written to cover only operational risks for a leased location, or if the insured feels that the site history does not warrant coverage for legacy events. Additionally, policies can also be crafted to provide full coverage for a single site or multiple locations.