Monday, June 22, 2009

A STAFFING COMPANY DILEMMA: THE “ACTION-OVER CLAIM”

Any staffing firm that does not know the bottom-line impact of an Action-Over Claim should rethink their relationship with their risk services provider.

The American Staffing Assurance Company partners with staffing firms that want to be aware of issues like Action-Over Claims and strive to be the “Best of the Best.” The unique ASAC “Product Follows the Process” methodology allows ASAC and its Exclusive Agents to provide consultative services to staffing firms at the highest corporate level, facilitating sound business decisions that contemplate a comprehensive understanding of the “Ultimate Cost of Risk” associated with those decisions. Over time, this “Aligned Interests” partnership allows ASAC insureds to consistently reduce their ultimate cost of risk, in a never-ending quest to achieve the lowest ultimate cost of risk possible and, in turn, profitably grow their business. An understanding of Action-Over Claims is just one area in which we educate our clients and is the topic of this article.

In every state, an injured worker’s “sole remedy” from their employer is through the Workers’ Compensation Act. Therefore, if a staffing firm’s employee is injured on the job, they are prohibited from suing their employer for damages because of the availability of Workers’ Compensation insurance. The Workers’ Compensation law does not, however, prohibit the injured worker from suing parties other than their employer. In many cases, the staffing firm’s client becomes the target of an injured worker’s suit. With the duty a staffing firm’s client has to maintain a safe working environment, under what is called the “Safe-Place-to-Work Doctrine,” the staffing firm’s injured employee can make an argument that the staffing firm’s client did not maintain a “safe place to work” and the employee was injured as a direct result of the unsafe work environment. This allows the injured worker to bring a suit against the staffing firm’s client and, frequently, these suits are for amounts well beyond the Workers’ Compensation payments made.

Once this action takes place, we have not only a Workers’ Compensation claim with the employer, but also a claim against the staffing firm’s client for bodily injury arising out of the “Safe-Place-to-Work Doctrine.” Little does the staffing firm employer of the injured worker know, but this is soon to become a claim against the staffing firm’s Commercial General Liability Policy. This is only true, of course, if the contract contains language that allows this shifting of liability.

Most staffing contracts contain an Indemnification and Hold Harmless provision stating that the staffing firm agrees to indemnify and hold their client harmless from claims arising out of the staffing firm’s work. In addition, staffing firms are often required to name their client as an Additional Insured under the staffing firm’s liability policies. By listing the staffing firm’s client as an additional insured, any legal actions against the staffing firm’s client for bodily injury are now covered under the staffing firm’s policy. Additionally, the Indemnification and Hold Harmless agreement obligates the staffing firm to be responsible for injuries arising out their work for their client.

So, if the injury to the worker arose out of their employment with the staffing firm and as a result the employee sues the staffing firm’s client under the “safe place to work” theory, once the staffing firm’s client receives the lawsuit, they tender the defense of the suit back to the staffing firm. If the staffing firm has coverage for contractual liability assumed by contract, as they should, their liability carrier is obligated to defend the staffing firm’s client and pay a judgment, if one is issued. This is what we call an Action-Over Claim.

Action-Over Claims are not new to the staffing industry. Fortunately, many staffing firms have not experienced this type of claim, but, those who have certainly realize the impact they can have on the bottom-line, especially in the scenario in which the staffing firm’s liability policy does not cover contractual liability assumed, and the staffing firm is left uninsured. In a perfect world, Workers’ Compensation would be enough for an injured worker. Unfortunately, we don’t live in a perfect world. The sad reality of these claims is that, despite the millions of dollars the attorney tells the injured worker they will receive, typically, the only one who prospers is the attorney. Once a judgment is rendered, and provided there is any award, the Workers’ Compensation carrier is first in line to be repaid for what they spent on the claim. Right behind them is the attorney, looking for their percentage. In the end, the injured worker often receives very little.

It is very important if you are a staffing firm to know what coverage is being afforded under your liability policy, and, more importantly, what is not being provided. Additionally, consistent with the ASAC “Product follows the Process” methodology, it is also crucial for staffing firms and the clients of staffing firms to understand the impact of their contractual agreements.

To learn more about this and other risk related issues facing the staffing industry, please feel free to contact:

James C. Farber, CIC, LIC
President
American Staffing Assurance Company
“Trusted Advisors to the Staffing Industry”
Office: (313) 881-8069
Mobile: (313) 550-8486

About American Staffing Assurance Company:

The American Staffing Assurance Company program exists to partner with staffing firms that strive to be the “Best of the Best.” The unique ASAC “Product Follows the Process” methodology allows ASAC and its Exclusive Agents to provide consultative services to staffing firms at the highest corporate level, facilitating sound business decisions that contemplate a comprehensive understanding of the “Ultimate Cost of Risk” associated with those decisions. Over time, this “Aligned Interests” partnership allows ASAC insureds to consistently reduce their ultimate cost of risk, in a never-ending quest to achieve the lowest ultimate cost of risk possible and, in turn, profitably grow their business.