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The Alternate Employer Endorsement: A Growing Trend

While looking through a stack of insurance contracts, you’ll likely notice that many include additional insured endorsements – unless you’re looking at workers’ compensation policies. These policies are intended to cover the insured’s employees. Adding an additional insured would require the policyholder to cover an owner or general contractor’s employees for work-related injuries. Therefore, this endorsement is not permitted for workers’ compensation coverage. This restriction has sparked a growing interest in something called the “alternate employer endorsement.”

Before we explore the alternate employer endorsement and how it differs from the additional insured, let’s first cover some ways that contractors can better protect themselves from work-related claims.

alternate employer endorsement

 

 

 

 


Protect and Prevent

Owners and upper-tier contractors should take the following steps to proactively manage employee-related claims from subcontractors:

  1. Include a good indemnity section in your contract. The American Institute of Architects (AIA) and ConsensusDocs have good examples of reasonable indemnity agreements.
  2. Have your subcontractors include a waiver of subrogation in your favor on their workers’ compensation policies. This keeps the subcontractors’ insurance companies from coming after you for injuries to their employees.
  3. Be sure your subcontractors include you as an additional insured on their general liability policies. A subcontractor’s injured employee could sue your company under general liability (in addition to their employer’s workers’ compensation policy). As an additional insured, you can tender the claim back to the subcontractor’s general liability policy for defense and settlement.

Exploring the Alternate Employer Endorsement
Insurance companies are getting more requests to add the alternate employer endorsement to their workers’ compensation policies. The presumption is that general contractors are attempting to use it in lieu of an additional insured endorsement.

Historically, the alternate employer endorsement has been used when a contractor (special employer) lends or borrows employees from another employer (regular employer). This is referred to as the “borrowed servant doctrine.” It states that if you (as a special employer) borrow or lease an employee from another firm (the regular employer), that employer provides the workers’ compensation coverage for the employee. This applies to temporary employees, equipment operators who are rented with the equipment and joint venture arrangements. The regular employer is providing workers’ compensation for their employee, but because there could be confusion about who the employee is actually working for at the time of injury, they include the special employer as an “alternate employer” on their policy. If an employee tried to sue the special employer over an injury, that suit would come back to the regular employer’s workers’ compensation policy and all coverage for both entities would come from that policy.

So how would the alternate employer endorsement work in a normal owner / general contractor / subcontractor relationship? Let’s review the following scenario: If an owner becomes an alternate employer on a general contractor’s workers’ compensation policy, the owner would have the same sole remedy protection given to the general contractor for employee injuries. With an alternate employer endorsement in favor of the owner, the entire claim for both companies would come out of the general contractor’s workers’ compensation policy. The same would hold true for a general contractor / subcontractor relationship.

Watching and Waiting
While the alternate employer endorsement trend isn’t yet common within our local market, we are starting to survey carriers to gauge their attitude toward this approach. We are also following local and national trade publications to see how other areas of the country are accepting the wording and endorsements, and looking for court cases that will back this up as a reasonable change to a risk transfer request. Our risk managers are watching this trend closely and we will bring you more information as it becomes available.

This article originally appeared in the 2019 | ISSUE ONE of the SilverLink magazine, under the title “ A Growing Trend: The Alternate Employer Endorsement” To receive a complimentary subscription to the SilverLink magazine, sign up here.

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