In most civil cases, courts are careful to ensure that plaintiffs cannot benefit from a double recovery. That is to say, plaintiffs do not get to recover for the same injury twice. The purpose of a negligence lawsuit is to restore a person to the state they were in prior to suffering their injuries by compensating them for those injuries. This is one reason why insurance companies retain rights of subrogation.
Is Double Recovery Is Possible Under Workers' Compensation?
However, workers' compensation laws are set up in such a way that this type of double recovery is allowed. Workers compensation is set up to be the exclusive remedy for injuries suffered by an employee between that employee and his employer. It provides set statutory benefits based on the nature and severity of the injury and prevents the employee from suing the employer.
Workers' Compensation Works Differently
Workers compensation, however, does not prevent an employee from also suing a third party whose negligence caused his or her injury. These types of situations are increasingly common as more and more workspaces have employees of different companies working in close cooperation with each other on the same site. Construction sites in particular are rife with opportunities for an employee of one subcontractor to cause injury to the employee of another subcontractor through carelessness, leading to the injured employee collecting worker’s compensation benefits from their direct employer and then trying to sue both the other subcontractor and the general contractor on the site.
Can Contracts Limit Coverage?
In this day and age, though, parties are normally wise to this possibility and attempt to address the issue through contractual language. Parties will often seek indemnity from each other for any suit brought by the other’s employee. This puts the employer in the situation of having to pay out for worker’s compensation benefits and also defending a lawsuit brought by the employee.
No Coverage Via Commercial General Liability Policies
Things can get even trickier from there. The standard commercial general liability policy excludes coverage for any liability resulting from injury to an employee of the insured. The standard employer’s liability policy excludes coverage for any liability assumed via contract. As a result, this type of lawsuit and indemnity can lead to a significant coverage gap. The commercial general liability policy will often provide coverage in this situation despite the employer’s liability exclusion, but only if liability is assumed via an “insured contract.”
Wording in Contracts Matter
On top of all of this, the exact wording of policies, endorsements, and contracts can matter immensely. Whether an exclusion or endorsement applies to employees of an insured or a named insured, whether contracting parties have sought additional insured status, the laws regarding indemnification agreements in specific states, can all complicate coverage determinations in these cases. Small changes to language can cost millions of dollars.
Reducing your Business's Risk
As a result, companies need to pay attention when negotiating the hold harmless and indemnification provisions of their contracts and make sure they match their insurance coverage to avoid coverage gaps.