Quality labor is becoming hard to find in the construction industry and as a result, construction companies are turning to staffing firms. Employers sign the staffing firm’s agreements in order to get the labor they need, but this can lead to risk management and insurance complications. There are two lines of coverage to review: workers’ compensation and general liability. This article will explain potential gaps in coverage and suggest solutions to avoid possible issues.
It’s understood that staffing firms are required to carry workers’ compensation for the labor they provide. However, this doesn’t mean construction companies are free from potential work comp claims.
- Example: A laborer is injured on the job. The staffing firm provides work comp to that laborer. That laborer then sues the construction company for their liability as the “supervising employer” and/or “negligence.”
Although the contract requires the staffing firm to provide work comp for the laborer, it cannot prevent the laborer from suing the construction company. For this reason, we suggest the staffing firm carry an Alternate Employer Endorsement on their work comp policy, naming the construction company (ISO Form: WC 00 03 01A). This endorsement acts like an Additional Insured Endorsement does on the general liability policy. Therefore, if the construction company were to be sued, they would simply tender the claim back to the staffing company. In addition to requiring this form in the contract, the contract should also require the staffing firm to include a Waiver of Subrogation in favor of the construction company on their work comp policy. This way the staffing firm’s work comp carrier cannot subrogate, or go after, the construction company’s work comp carrier.
It’s understood that the construction company will be required to carry general liability on behalf of the laborers. However, this doesn’t mean the construction company’s general liability policy will pick up all claims arising from a laborer’s negligence, even though the construction company has accepted liability in the contract between themselves and the staffing firm. In order to understand this, we have to look at the definition of leased worker, temporary worker, and employee.
- Leased worker means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm to perform duties related to the conduct of your business. Leased worker does not include temporary worker.
- Temporary worker means a person who is furnished to you to substitute for a permanent employee on leave or to meet seasonal or short-term workload conditions.
- Employee includes a leased worker but not a temporary worker.
An employee is an insured under the general liability policy. A leased worker is considered an employee per the definition of employee, so a leased worker is an insured. A temporary worker is not considered an employee per the definition of employee, so a temporary worker is not considered an insured.
So, if the staffing firm sends a leased worker, there is no issue. The leased worker is considered an employee and employees are covered under the general liability policy.
The issue arises if the staffing firm sends a worker who falls under the definition of temporary worker. Since a temporary worker is not an employee, they are not an insured under the general liability policy. So, if the temporary worker was to cause a general liability claim, and if the temporary worker was named individually, the general liability carrier might deny coverage to the temporary worker. Note, the general liability carrier would defend the construction company from the negligent acts of the temporary worker.
Unlike work comp, there is no clear solution. We recommend the construction company name the staffing firm as an Additional Insured and that each party carry a Waiver of Subrogation on their general liability policy. The construction company would need to explain their use of staffing firms to their general liability carrier, as well as send the labor contract. The construction company needs to confirm that all laborers will be treated as insureds, thus covered, under the general liability policy regardless of whether they meet the definition of leased worker, or temporary worker.
Labor will be an ongoing issue for the construction industry and staffing firms will continue to be used. It’s important that both parties clearly outline responsibility in the governing contract. Generally, the staffing firm picks up the laborer’s workers’ compensation and the construction company picks up the laborer’s general liability. However, insurance companies have different definitions for different types of workers which could lead to problems. As a result, we suggest the following:
- Workers’ Compensation – The staffing firm needs to carry an Alternate Employer Endorsement and a Waiver of Subrogation naming the construction company.
- General Liability – The construction company needs to carry an Additional Insured Endorsement naming the staffing firm on their general liability policy. There needs to be a mutual Waiver of Subrogation on both the staffing firm’s and construction company’s general liability policies. The construction company needs to send the labor contract to their general liability carrier and they need to receive confirmation that all laborers (whether they meet the definition of leased worker or temporary worker) are considered insureds under their general liability policy.