Leased Employees, Insurance Coverage, and the Fun House Mirror

I have a high school education in physics, but I seem to remember that physics teaches that for every action, there is an equal and opposite reaction. One of the things I like about insurance coverage litigation and counseling is it is much the same; things happen in the real (i.e., non-insurance) world, and the world of insurance coverage reacts. In this way, insurance coverage law and the industry itself act as almost a fun house mirror of events in the real world, mirroring, but with some distortion, what is going on out there.

This article here, on the insurance coverage issues raised by the use of leased workers, is a perfect case in point. On the one hand, you have the real world, in which companies seek to reduce labor costs by leasing workers, while on the other hand, you have a legal regime starting to fix the spot at which liabilities related to leased workers should rest. As the writer points out, these events require companies to realign their insurance coverages, or otherwise risk absorbing unexpected, uninsured, potentially significant losses.

The author addresses “a recent decision by Judge F. Dennis Saylor IV of the United States District Court in Massachusetts [that] raised a red flag for employers seeking to reap [the] benefits” of reduced costs by the use of leased workers. In the case at issue, an injured leased employee was not barred by Massachusetts’ workers compensation statute from suing the company that was making use of his services, but, at the same time, that company did not itself have coverage under its general liability policy for claims brought by such leased workers. The claim, as a result, essentially fell into the gap between workers compensation insurance and the company’s liability coverages, leaving the company itself fully exposed to the risk of injury to the leased employee.

And returning to my point about how insurance coverage and insurance policies end up reflecting back what is going on in the real world, the author explains the cause of this phenomenon, noting that:  
a CGL policy usually contains an “employer exclusion,” which excludes injuries to the employer’s employees sustained within the scope of their employment for their employer. The “employer exclusion” operates in a fairly straightforward manner when the injured employee was hired directly by the employer and is a traditional employee of the employer. The exclusion becomes more complicated when the injured worker is a person who was leased, furnished or provided to the employer by an employee leasing firm. Due to the popularity of this type of alternative staffing arrangement, the typical CGL policy includes provisions stating the exclusion applies to “leased workers.”  

So, at the end of the day, as companies shifted to leased workers, their insurers shifted right along with them, preventing the risks of those workers from being passed onto them, unless, as the author of the article points out, the company is willing to pay additional premium dollars to obtain coverage of those leased employees.