Author: Chris Boggs
Workers' compensation, as a coverage, is simple. What makes workers' comp difficult are the laws and special or unusual employment situations that can exist.
State laws, federal laws, "non-traditional" employment relationships create WC coverage issues every agent must know how to address. In this article three endorsements every agent should know how and when to use are addressed:
- Longshore and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06 A)
- Alternate Employer Endorsement (WC 00 03 01 A)
- Voluntary Compensation and Employers' Liability Coverage Endorsement (WC 00 03 11 A)
Longshore and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06 A)
Attach this endorsement when the insured is a "maritime" employer and employs any worker eligible for and subject to the Longshore and Harbor Workers' Compensation Act (33 USC Sections 901-950). Although a federal law, each state prescribes the benefits provided under USL&HW thus the applicable state must be listed for coverage to apply.
The act defines an eligible employer to be: "an employer any of whose employees are employed in maritime employment, in whole or in part, upon the navigable waters of the United States (including any adjoining pier, wharf, dry dock, terminal, building way, marine railway, or other adjoining area customarily used by an employer in loading, unloading, repairing, or building a vessel)."
An eligible employee means: "any person engaged in maritime employment, including any longshoreman or other person engaged in longshoring operations, and any harbor-worker including a ship repairman, shipbuilder, and ship-breaker." Note, the worker must be engaged in maritime employment or as a harbor-worker.
But the act specifically excludes certain individuals from the meaning of "employee" and thus provisions of the Act. Excluded from the definition of employee under USL&HW law are:
- Individuals employed exclusively to perform office clerical, secretarial, security, or data processing work;
- Individuals employed by a club, camp, recreational operation, restaurant, museum, or retail outlet;
- Individuals employed by a marina and who are not engaged in construction, replacement, or expansion of such marina (except for routine maintenance);
- Individuals who (i) are employed by suppliers, transporters, or vendors, (ii) are temporarily doing business on the premises of an employer described in the definition of "employer," and (iii) are not engaged in work normally performed by employees of that employer under this chapter;
- Aquaculture workers;
- Individuals employed to build any recreational vessel under sixty-five feet in length, or individuals employed to repair any recreational vessel, or to dismantle any part of a recreational vessel in connection with the repair of such vessel;
- A master or member of a crew of any vessel; or
- Any person engaged by a master to load or unload or repair any small vessel under eighteen (18) tons net.
These excluded workers are subject to state workers' comp laws, not USL&HW laws - except for masters or members of a crew. To garner protection for maters and members of a crew if a Protection and Indemnity policy exists, attach the Maritime Coverage Endorsement (WC 00 02 01 B). If a Protection and Indemnity policy or Jones Act coverage doesn't exist or does not cover all master or crew members, attach the Voluntary Compensation Maritime Coverage Endorsement (WC 00 02 03) and the Maritime Coverage Endorsement (WC 00 02 01 B).
Classifying a worker as a longshoreman or harbor worker requires the application of two specific tests: the "situs" and "status" tests. USL&HW benefits must be extended to employees that meet both requirements:
- Situs requires that the employment be on, above or below navigable waters and adjoining areas. A waterway is considered navigable if it provides a channel for commerce with other states or countries (interstate or international commerce).
However, working around or over water does not in itself qualify an individual for the benefits prescribed by the USL&HW Act. To qualify for such coverage requires satisfying the "status" test.
- Status as a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships; or the maintenance, repair or dismantling of ships.
Unless both tests are satisfied, the employee is not a longshoreman or a harbor worker and is not eligible for the applicable benefits. Nor must the endorsement be attached.
An individual or group of employees working on a bridge above navigable waters does not necessarily qualify for nor require USL&HW protection. Although they are working above navigable water, the employees do not meet the status test as they are not working with ships or water-going vessels.
Likewise, a florist shop employee delivering roses to a passenger on a cruise ship does not qualify for the protection. I only mention this because this is so often thrown up as an example.
Remember, USL&HW technically applies to only those employees working for those employers defined above who meet both the status and situs tests. Alternate Employer Endorsement (WC 00 03 01 A)
"The vital test in determining whether a workman furnished by [the primary employer] is a servant of [the special employer] is whether they (the employee(s)) are subject to the "special employer's" control or right of control not only with regard to the work to be done but also with regard to the employee's manner of performing it
." This paraphrase (changed to remove specificities) of the 1935 Pennsylvania Supreme Court's ruling in Venezia v. Philadelphia Electric Company
has been the basis upon which questions, suits and claims involving supposed borrowed servants have been answered, decided and settled.
Workers' compensation coverage is designed as the sole remedy for the injured employee and a protection against lawsuits for the employer (except in cases of egregious acts). This section attempts to define who the "employer
" is or may be — with a particular emphasis on the "borrowed servant doctrine" and the need for the Alternate Employer Endorsement (WC 00 03 01 A).
Who pays an employee is somewhat immaterial at the time of an injury. The real questions are: 1) who is considered the "employer" when the injury occurred; and 2) which WC policy pays for the injury?
To answer both questions, we must remember there are actually four types of employee/employer relationships:
- Direct relationships – in simplified terms, the "traditional" employer/employee relationship created via a contract of hire (express or implied) where the worker is on the regular payroll;
- De Facto relationships – an employer/employee relationship created based on the facts of the relationship;
- De Jure relationships – also known as statutory employee relationships. The worker is an employee because the law says he is an employee (i.e. an upper tier contractor being statutorily required to provide work comp benefits to the employees of an uninsured lower tier contractor); and
- Special (Borrowed Servant) relationships – an employer/employee relationship created by direct control.
Absent evidence to the contrary, the original (direct) employer is presumed to retain control and have responsibility for providing worker's compensation protection. But the weight of evidence may shift this responsibility to another party based on a three-part test:
- Has the direct employer volunteered or directed the employee to work for the special employer, and has the employee agreed to such assignment;
- Is the work being done essentially that of the special employer; and
- Does the special employer have the right to control the details of the work?
If all three questions are answered "yes," the employee is a borrowed servant and the party for whom the borrowed servant is working is the special ("doctrinal") employer. This makes the special employer responsible for providing the workers' compensation protection.
But these are not the only tests of control. Four other questions may need to be asked to prove direct and absolute control:
- Does the presumed special employer have the right to discharge the worker? If so, that evidences a borrowed servant;
- Who has the obligation to pay the employee? If the employee is paid by the borrowing employer, this is more proof of "special employer" status;
- What is the course of dealings between the direct employer and the presumed special employer? Is there a contractual relationship or requirement? Employer-employee status can potentially be created by contract; and
- Is the lent employee a specialist? And does the presumed special employer have the skill or knowledge to supervise the manner in which the work is being performed? This is a "negative test." If the borrowing employer does not have the ability or skill necessary, the lent worker will likely not be considered a borrowed servant since one cannot control what one does not understand and cannot do; thus the individual is not a putative employee but a specialist.
When direct and absolute "control" is proved, a Special Employer/Special Employee relationship is created. The loaned worker is a "borrowed servant" and the employer to which they are loaned is considered the "doctrinal" or special employer. Thus, the special employer is responsible for providing workers' comp protection to the worker.
However, this is another option. The direct employer's workers' comp policy can be endorsed to extend protection regardless of the special employer/employee relationship. To assign (or limit) responsibility to the direct employer (and remove responsibility from the special employer), attach the Alternate Employer Endorsement (WC 00 03 01A) to the direct employer's policy.
The endorsement must list the name of the special employer to whom the employee was/is loaned.
Essentially the Alternate Employer Endorsement extends insured status to the entities named in the endorsement. But remember, the Alternate Employer Endorsement does not remove the special employer's responsibility to purchase work comp for its own direct, de facto or de jure employees.
When the Alternate Employer Endorsement is used, the employee is protected by, and included in the audit for, the direct employer's work comp policy when working for any entity specifically named in the Alternate Employer Endorsement.
If the direct employer wants to provide coverage even though the special ("doctrinal") employer has control of the worker, attach the Alternate Employer Endorsement. This may be the preferred method of managing this relationship to avoid any finger pointing which leads to time in court.
Voluntary Compensation and Employers' Liability Coverage Endorsement (WC 00 03 11 A)
No, this is not workers' compensation coverage for volunteers. The Voluntary Compensation and Employers' Liability Coverage Endorsement (WC 00 03 11 A) is attached when the employer is not required to provide workers' compensation protection but does so anyway.
The employer is volunteering to provide protection. Get it?
Most commonly this endorsement is attached when the employer is in a state that has a number threshold before workers' compensation protection is required. Employers in these states are not subject to the law until the number of employees reaches a certain number. These states include:
- Alabama (5)
- Arkansas (3)
- Florida (4)
- Georgia (3)
- Mississippi (5)
- Missouri (5)
- New Mexico (3)
- North Carolina (3)
- South Carolina (4)
- Tennessee (5)
- Virginia (3)
- Wisconsin (3)
If an employer in North Carolina, for example, has only two employees but purchases workers' compensation anyway, this endorsement is attached. The purpose is to preclude the carrier from denying coverage because the insured is not subject to the state law.
NCCI's work comp policy states that coverage applies as per the state law. If the employer is not subject to the state law, the carrier might try to deny coverage absent this endorsement.
The endorsement expands coverage by stating: "We will pay an amount equal to the benefits that would be required of you if you and your employees described in the Schedule were subject to the workers' compensation law shown in the Schedule." Note the wording, "that would be required…if you…were subject…."
Another use of this endorsement is when coverage is extended to individuals or classes of individuals not required to be protected by workers' compensation coverage. The list of individuals not required to be protected by WC varies by state, but examples include:
- Commissioned real estate agents;
- Volunteer ski patrol employees;
- Members of the clergy;
- Some taxicab drivers;
- Professional athletes;
- Athletic contest officials;
- Officers of non-profit associations and corporations;
- Direct sale people (i.e. Mary Kay consultants and directors);
- Newspaper re-sellers; and
Remember, this is not an all-inclusive list, nor does this list apply in every state. Check your state for specifics.
If the insured wants to provide workers' compensation protection and benefits when not required by law, this endorsement must be attached.
Remember the Upcoming Work Comp Webinar
In April, the Virtual University attacked and answered two key workers' compensation concepts:
You can purchase the recorded webinar that provides detailed answers to these two questions.
Last Updated: April 20, 2017