Many business and home owners assume that the employees of others are covered by workers compensation and that the workers compensation coverage protects them (the business/home owner) from liability should some else’s employee be injured.
This assumption is NOT correct!
Although California, like most states, has what is called an “exclusive remedy” rule which mandates that Workers’ Compensation benefits are the exclusive remedy for employees who are injured on the job, this liability protection does not automatically extend to third parties (i.e. business and home owners).
A Third Party Action Over claim occurs when an injured employee pursues damages from a third party (other than his/her employer). Examples are provided below to show how a home owner (Example 1) and a business owner (Example 2) can be impacted by a third party action over claim.
Example 1: A home owner hires an air conditioning repair person (an employee of the Air Conditioning Repair company) to fix a broken thermostat. The repair person injuries his/herself while in the home by tripping over a child’s toy. The repair person collects from his/her employer’s workers’ compensation policy and files a civil action against the home owner for the same injury.
Example 2: An employee of a plumbing company is working on a jobsite along with a number of other contractors. A framer carrying lumber drops the lumber on the plumber while he is working and injures him. The plumber can collect from workers compensation and pursue civil action against the framer for the same injury.
*In the examples above, even if the employee does not pursue action against the third party, the workers compensation carrier for the employer may elect to subrogate against the third party for their negligence.
There are ways to reduce and/or eliminate one’s exposure to Third Party Action Over liability claims. One of the most common ways of doing so is through contractual risk transfer. Contractual risk transfer is the process of transferring a risk to another party by way of contact; in this case it is transferring the risk associated with a Third Party Action Over liability claim.
For a more detailed explanation of Third Party Action Over liability or Contractual Risk Transfer, please contact GDI Insurance.
Matthew Davis MBA, AAI