Insurance carriers could be saving millions of dollars by properly using exclusions to bar coverage for staffing agencies, thanks to a published decision from 2019.
The 2nd District Court of Appeal’s decision in Travelers Property Casualty Co. of America v. WCAB (Mastache) 40 Cal. App. 5th 728, provides a way for insurance companies to avoid liability for staffing agency employees. In that case, the appellate court ruled that an endorsement aka exclusions of staffing agency employees can withstand judicial scrutiny and bar coverage for staffing agency employees. The ruling was premised upon the following fact pattern:
- If the staffing agency (aka the general employer) sends a staffing agency employee over to a special employer, and
- The special employer’s insurance policy has an exclusion on a form approved by the Department of Insurance that excludes coverage for the staffing agency, then
- The exclusion is valid if it is signed by both parties.
- Exception: If the exclusion is unsigned, additional evidence can be used to prove intent to exclude coverage for the staffing agency. (Ex: the additional evidence could be a LC 3602(d) contract, or some other documentary or witness evidence.)
The use of exclusions to bar coverage for staffing agency employees actually dates back to the late 2000s, as appellate courts began to focus on the practice in various coverage disputes.
Even after that, that the case law still favored CIGA when a staffing agency – aka the general employer – would report that their workers’ compensation carrier was insolvent. When that happened, CIGA would point the finger at the alleged special employer, and argue that the alleged special employer’s carrier was “other insurance.”
That worked well for CIGA until the Mastache decision came along, which was one of the first cases to rule against CIGA under that fact pattern. Suddenly, carriers who disclaimed coverage for staffing agency employees on state-approved endorsements had a published case they could use to defeat CIGA’s “other insurance” arguments.
VIEW FROM THE GROUND LEVEL
On the ground level, workers’ compensation defense attorneys will tell you that we still do not see enough endorsements or exclusions barring coverage for staffing agencies. We would like to see more of these, and it appears that this is one area that insurers could improve upon.
For insurers, it is difficult because their insureds are not always honest about use of staffing agencies. Practically speaking, the more insurers can touch base with their employers to question the use of staffing agencies, the better off they will be.
These endorsements that exclude coverage would be well-served to disclaim coverage for specific staffing agencies by name. The more specific the exclusions are, the higher the probability it will withstand judicial scrutiny.
The other area underwriters will want to focus on is ensuring that they are using the latest state-approved endorsements that exclude coverage. That can be a bit confusing, because the forms have evolved over the years.
Still, it’s a piece of the puzzle that is worth the time and energy to focus on, because doing so could avoid liability for hundreds, if not thousands of claims per year.
If I had a dollar for every time someone said CIGA’s “other insurance” argument was disproportionately unfair to other carriers and employers, I could probably afford to start my own staffing agency. (*That’s a bad joke, folks.)
On the bright side, the Mastache decision does even the playing field when fighting with CIGA or the Uninsured Employers Benefits Trust Fund.
CONCLUSION
Insurers, please talk to your employers about what staffing agencies they are using. Next, use a state-approved endorsement to disclaim coverage for any staffing agencies you don’t want to provide coverage for. This will save you big bucks in the long run.
Got a question about workers’ compensation defense issues? Feel free to contact John P. Kamin. Mr. Kamin is a workers’ compensation defense attorney and equity partner at Bradford & Barthel’s Woodland Hills location, where he monitors the recent legislative affairs as the firm’s Director of the Editorial Board. Mr. Kamin previously worked as a journalist for WorkCompCentral, where he reported on work-related injuries in all 50 states. Please feel free to contact John at jkamin@bradfordbarthel.com or at (818) 654-0411.
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