Workers from staffing companies often have the right to sue for personal injuries occurring in their temporary workplace
Over 11,000,000 people are hired every year by staffing companies as temporary or contract employees. In any given week, US companies will have 3 million of these people temporary or contract employees working for them. The law classifies these workers as “loaned servants or loaned employees”. The staffing company is legally the “general employer” and the company (your insured) that is furnished the services of the loaned employee is the loaned employees “special employer”. (For reasons that will be clear as this article continues, this special employer will be identified as the “Commercial General Liability Policy Insured”, or “CGL Insured”, for short).
[pullquote]Lawsuits brought by temporary or contract employees against CGL Insureds for work-related personal injuries occur on a consistent, if not frequent, basis.[/pullquote]
Notwithstanding this legal relationship, the CGL Insureds furnished loaned employee sometime acquire, along with the services of the loaned employee, a personal injury liability risk that they may not have anticipated.
Even though CGL Insureds are classified as special employers under the workers’ compensation act they do not necessarily have immunity from suits arising out of workplace injuries brought by loaned employees working for them as temporary or contract employees. Of even more concern, as some CGL Insureds have learned, the policy definitions of their Commercial General Liability policies can create possible coverage issues that could leave them open to uncovered losses arising from the temporary or contract workers furnished by a staffing company.
CGL Insureds can sometimes be sued by temporary workers furnished to them by staffing companies
When a staffing company furnishes temporary or contract workers to an insured the control of that temporary or contract worker’s duties invariably passes to the CGL Insured.
If the insured has its own workers compensation policy and it is liable for the payment of compensation for that temporary or contract worker its immunity against suit from the temporary or contract worker will remain intact. If, however, a CGL Insured inadvertently enters into a contract with a staffing agency where it does not directly pay for workers compensation insurance, then that CGL Insured may have no workers’ compensation immunity. In that case, if the CGL Insured’s temporary or contract worker suffers a work related injury, the CGL insured may find itself the defendant in a personal injury lawsuit brought by the temporary or contract employee or even a subrogation suit brought by the staffing agency’s workers compensation insurance carrier.
Many of the most serious lawsuits defended under CGL policies result from injured workers or subrogating insurers bringing third-party suits to recover for work related personal injuries allegedly caused by third parties or companies that cannot claim immunity under the workers’ compensation act.
A recent example of the CGL coverage problem from temporary workers.
Many lawsuits brought by temporary or contract employees against CGL Insureds for work-related personal injuries are simply defended, tried or settled by CGL carriers in the ordinary course of business. However, in some cases CGL carriers receiving such lawsuits sue their CGL Insureds to avoid liability based on the policy’s definition of ’employee’.
For example, in July, 2013, the Appeals Court decided Central Mutual Ins. Co. v. True Plastics, Inc. 84 Mass. App. Ct. 17 (2013).
True Plastics manufactured made-to-order plastic components. When one of its customers placed an unexpectedly large order for specially fabricated plastic pieces, True Plastics decided its existing staff could not fulfill the order in time. So, True Plastics contracted with a staffing company, Dynamic Staffing, Inc., to furnish it with one of its employees, Marciala Sanchez, to assist with the order. Ms. Sanchez started work at True Plastics but remained an employee of the staffing company. True Plastics trained her and she worked exclusively to produce end-products for that specific customer’s order. Three weeks after starting at True Plastics she was seriously injured and stopped working.
Although she worked under the direction of True Plastics as her special employer, the general employer, Dynamic Staffing, was liable for the payment of workers’ compensation benefits under its workers’ compensation insurance policy. True Plastics had no liability for paying Ms. Sanchez’s workers’ compensation benefits and, as a result, True Plastics could not claim any immunity from the personal injury lawsuit brought against it by Ms. Sanchez.
True Plastics, as any dutiful insured would, notified its CGL carrier, Central Mutual, of the suit and requested indemnity and defense. It received in response, as have other insureds in similar situations, a reservation of rights from the carrier followed by a lawsuit requesting the court to declare that Central Mutual had no liability under the policy.
The factual question of leased employee versus temporary employee
While Central Mutual did defend True Plastics under a reservation of rights in the lawsuit brought by Ms. Sanchez, True Plastics did have to engage, at its own expense, counsel to defend itself against the declaratory judgment brought by Central Mutual to disclaim liability.
Central Mutual based its case against coverage for the Sanchez lawsuit on the definition of employee contained within the standard CGL policy. This definition states with regard to employees that: “Employee’ includes a ‘leased worker.’ ‘Employee’ does not include a ‘temporary worker’.
Central mutual argued that based upon its investigation of True Plastic’s history of using Dynamics Staffing’s employees for its work that Ms. Sanchez was per the policy’s definition a ‘leased employee’ that was “a person leased to you [True Plastics] by a labor leasing firm [Dynamic Staffing] under an agreement between you and the labor leasing firm [Dynamic Staffing], to perform duties related to the conduct of your [True Plastics’] business.’
Not surprisingly, True Plastics’ position was that Ms. Sanchez was not a leased employee but, based upon the facts, and the policy’s definition she was a ‘temporary worker’, “a person who is furnished to you to substitute for a permanent ’employee’ on leave or to meet seasonal or short-term workload conditions.”
Whether True Plastics had insurance for the Sanchez lawsuit or whether it would have to pay any settlement or judgment out of its own funds turned the Court’s answer to this question of Ms. Sanchez being a ‘leased worker’ or a ‘temporary worker’ under the policy.
In this case, the insured, True Plastics, satisfied the Superior Court and then the Appeals Court, when Central Mutual appealed, that Ms. Sanchez fit the definition of a temporary worker. As a result, Central Mutual, ultimately bore the costs of the settlement of the Sanchez lawsuit. However, True Plastics would, under the so-called American Rule that Massachusetts courts apply, have had to pay for its own legal expenses in proving to the courts and Central Mutual that Ms. Sanchez was a temporary worker and not a leased employee.
Insureds using temporary staffing companies run a real risk of having an uncovered claim
For a variety of reasons temporary employment arrangements have been increasing over the last few years. The two most common reasons cited, among others, include the Great Recession and the Affordable Care Act. Whatever the reasons may actually be, insurance agents want to be alert to the fact that their insureds entering into these contracts may be creating potential coverage problems. Standard operating procedure for most insurance agents when one of their insureds enters into a property lease is for the agent to review the insurance conditions of the lease. Agents may likewise wish to familiarize themselves with the terms and conditions of any temporary employment contracts that their insureds may have with staffing companies.
The True Plastics case, and other similar cases, suggest that insurance agents may wish to delve deeper into their insureds’ employment practices to determine whether they contract with staffing companies for their employment needs. If so, the agent may wish to explain to them the possible coverage implications and the necessity for clarifying the relationship to avoid any third-party liability from their contracting practices
Agent Takeaways
- If the CGL Insured specifically contracts with the staffing company for liability for the workers’ compensation payments, it should be able to maintain its complete exemption from any third-party suit brought by a temporary or contract employee furnished by a staffing agency. For example, just before the Appeals Court decided the True Plastics case, that court decided a case called Coppola v. Salitsky Alloys, Inc. In that case, the Court ruled against an employee claiming that “… a staffing agency… was the general employer.” In part, because, although the staffing company actually paid the workers’ compensation premium, Salitsky Alloys had remained “liable for the payment of compensation”. In other words, careful negotiation and drafting of the workers’ compensation insurance provisions of an Insured’s temporary employment contracts can make them immune from personal injury suits brought by any temporary or contract employees furnished by staffing agencies.
- There is an ISO endorsement for the CGL, “Coverage for Injury to Leased Workers” that modifies the policy to state that the neither a “leased worker” nor a “temporary worker” is an “employee”. Whether a carrier would issue this endorsement or what a carrier would charge to issue the endorsement is an open question.
- Finally, any insured using temporary labor should carefully document the reason and rationale for hiring the temporary worker or workers to ensure that they can demonstrate to their CGL carrier that if the temporary worker brings a personal injury suit that that person was furnished to them by a staffing agency “to substitute for a permanent ’employee’ on leave or to meet seasonal or short-term workload conditions.” Such careful documentation can avoid an expensive and risky lawsuit with their CGL carrier over the question that consume the parties in the True Plastics litigation.
