By Allison McGreal, Assistant Vice President
If you Google the term “Action Over” you can find a plethora of articles written by lawyers and insurance professionals explaining the coverage, the NY Labor Laws and how the GL policy may be impacted. Each article may be an excellent educational resource, but as you sit in your client’s office, do you have a good enough working understanding of the coverage that will enable you to explain the intricacies to your customers? Action Over coverage is complex and may be overwhelming, and it can be difficult to confidently discuss this coverage as it relates to a specific insured’s needs.
What is Action Over?
According to the International Risk Management Institute (IRMI), it’s defined as “A type of action in which an injured employee, after collecting workers compensation benefits from the employer, sues a third party for contributing to the employee’s injury”. Often the contractual liability section within the GL policy form leaves the employer exposed to suits against their GL policy via the Employers Liability (EL) exclusion. An example of this is when a subcontractor injured on a jobsite files a claim against his Workers Compensation carrier and then also files a claim against the General Contractor responsible for hiring the subcontractor. The subcontractor brings the “action over” back to the GC and the exception to the EL exclusion, “This exclusion does not apply to liability assumed by the insured under an insured contract,” which leaves the GC vulnerable. If the GC and the subcontractor have a written hold harmless or indemnification agreement, the GC may be held liable in an action over lawsuit. This also may apply to a temporary employee hired by the employer.
What do you need to know?
As an agent, it’s your responsibility to understand potential gaps in coverage and to address them with your client. With Action Over claims, there are a lot of common misconceptions. It’s assumed that these claims happen mostly in NYC/5 boroughs and that they don’t occur “upstate.” This is not true. Action Over claims can happen anywhere, they may just be more prevalent in NYC. Contractors working upstate are equally susceptible to an Action Over lawsuit. It’s also important to understand that action over claims may occur in other states, often in areas such as TX, WV, and LA as related to the Oil & Gas Industry. Many of the subcontractors are working at heights on platforms, near wells, etc. It’s also believed these claims are typically a result of a fall from height. This is true; many of these incidents are the result of a fall from scaffolding, ladders, tables, sinks (yes, contractors will climb up on a sink to access a ceiling), roofs, etc. However, UST installation and other excavation services may also lead to an Action Over claim since falling from ground level into a hole is considered a fall from height. Another misconception is that consultants (vs contractors) don’t have Action Over claims. Even consultants and engineers occasionally climb a ladder with their clipboard and are just as likely to fall as a contractor taking a sample.
How are many insurance companies addressing Action Over?
An Action Over claim is often very costly from a financial standpoint. These losses may exhaust the policy limits, often reaching $1,000,000 and higher. Because of this, insurance carriers are being forced to increase premiums and restrict their underwriting guidelines. Some carriers are adding Action Over exclusions, some are using NYC/5 boroughs exclusions, others are revamping the underwriting process (requiring loss history for both GL and WC, health & safety protocols for employees and subcontractors, confirming the amount of work performed by subcontractors, and verifying where most of the work is done), and pricing the coverage accordingly.
What can you, as the agent, do for your clients?
You should assist them in understanding the importance of this critical coverage, encourage them to implement good health & safety protocols to ensure their staff and any subcontractors or temporary workers they hire are equally well trained in jobsite safety and encourage them to have a site supervisor at each project to ensure health & safety protocols are adhered to. Ask them where they are getting their labor pool and if they are hiring from reputable staffing agencies. Are they only using their own qualified staff? If you are offering terms with an Action Over exclusion, be sure your client fully understands the impact of not purchasing this critical coverage.
The following is an example of an actual Action Over claim filed and paid under a GL policy. A contractor (ABC, Inc.) located in upstate NY hired subcontractors from a temporary staffing agency and assumed they had been properly trained by the agency to follow safety rules. No additional safety training was provided to the subs by ABC, Inc. During the course of an abatement project, the claimant alleged the ladder on which he was standing shifted, causing him to fall 8 ft. to the floor. The injured worker filed a claim against the ABC, Inc. GL insurance policy and the loss grew to $215,000. Days later, another subcontractor alleged that during an asbestos abatement project, he fell from a 5 ft. scaffold and was injured. The total incurred loss was now $437,000 under the ABC, Inc. GL policy. This is one NY contractor, working upstate, who incurred $652,000 in losses from 2 incidents that occurred 3 days apart. Had they not had an insurance policy with Action Over coverage, most, if not all of the burden of these losses would have fallen on the insured. While a larger firm may be able to absorb similar large losses, the impact to a small to medium sized contractor could be catastrophic.
Insurance companies are addressing Action Over issues in different ways so it’s imperative for an agent to make sure that all options are explored and that the broadest coverage is being offered to their client. The insured may ultimately decide to go with a more restrictive policy for a reduced premium, but it’s critical to at least discuss all options before they make a decision.