If you missed it, go back and review Part I to read about building contracts to govern partnership scope, terminations, breaches, property controls and payment terms. Part II of this two-part series on drafting quality partnership contracts between your workforce management practice and the staffing suppliers you choose to support it focuses on the wide array of insurance types commonly encountered in these relationships and how each variety should be enunciated in a well-designed contract.
The insurance section of the contract must contain detailed parameters defining the insurance coverage suppliers will be expected to obtain; who should be named as certificate holders on the coverage; notice of cancellation terms; and the requirement of additional insured parties or a waiver of subrogation.
Standard insurances required are:
- Workers Compensation/ Employers Liability Insurance
- Comprehensive General Liability (CGL)
- Commercial Automobile Liability
- Umbrella and/or Excess Liability
- Professional Liability (Errors and Omission)
Let’s examine each insurance type to put some detail around what needs to be articulated in a contract.
This law is governed by statutes in every state. Specific laws vary with each jurisdiction, but key features are consistent. There are two parts to workers’ compensation insurance:
Part A – Workers’ Compensation
This does not include a dollar limit for the benefits provided since any applicable limits would be those established within the law of the state your coverage applies. Workers’ compensation covers the employer’s statutory liabilities under workers compensation laws.
Part B – Employers’ Liability
Employers’ Liability Insurance is generally Part B of the Workers’ Compensation Insurance. Employers’ liability covers liability arising out of employees’ work-related injuries that do not fall under the workers’ compensation statute. Employers’ liability insurance provides coverage for a business against lawsuits arising from employment-related injuries or illnesses. Be sure your contract contains any stipulations relevant to the state in which you’re operating.
Comprehensive General Liability (CGL)
This is one of the basic requirements of any risk mitigation plan. CGL generally includes two basic coverage parts:
Part A – Coverage for Bodily Injury and Property Damage
Under Part A, the insurer agrees to pay any damages the insured is legally obligated to pay because of bodily injury or property damage caused by accident.
Part B: Coverage for Personal and Advertising Injury.
Under Part B, the insurer agrees to pay damages for personal and advertising injury, which is injury arising out of specified offenses that may include false arrest, malicious prosecution, slander/libel, use of another’s advertising idea, etc.
A typical CGL policy will also have options to include the following coverage:
Under this coverage, the insurer agrees to pay medical expenses for bodily injury caused by an accident that occurred on the insured’s premises or because of the insured’s operation. Medical payments apply regardless of fault. The injured party does not have to prove the insured is legally liable to pay damages.
Products and Completed Operations
This coverage responds to bodily injury or property damage claims that would occur after the completion of a product or service, resulting from the negligence of the work performed, specifically from tangible products sold, manufactured or distributed. For example, if a contractor were to build a deck, and fail to secure the railing properly, and someone were to lean on the railing and suffer bodily injury, the completed operations portion of the general liability policy would respond. It is important to note however, that this does not cover the faulty work itself, just the resulting bodily injury and or property damage. Due to the nature of this coverage, it is not usually required of temporary staffing firms.
Commercial Automobile Liability
This insurance is designed for those organizations utilizing motor vehicles operated by employees provided by the staffing supplier. Commercial auto policies may include coverage for owned, non-owned or hired vehicles used in the course of carrying out a company’s business. Coverage may include vehicles owned or leased by the company, hired by the company, or employee-owned vehicles used for business purposes. Non-owned & hired auto liability covers bodily injury and property damage caused by a vehicle you hire (including rented or borrowed vehicles) or caused by non-owned vehicles (vehicles owned by others, including vehicles owned by your employees).
Basic business automobile policies only cover employees while they operate company-owned vehicles to perform company business. Therefore, it is important that any staffing agencies maintain non-owned and hired automobile liability coverage. This type of coverage will kick in if there is an accident and the staffing agency is found legally liable, which is why it is imperative to make sure this is clearly stated in the contract.
Umbrella and/or Excess Liability
These policies are designed to provide protection against significant losses. For a single premium, a Business Umbrella policy adds another layer of protection to any of several other policies that you might carry, including General Liability, Employer’s Liability, and Hired and Non-owned Auto Liability policies. For instance, if you have $1 million in General Liability coverage and a covered claim is settled for $1.5 million, your Business Umbrella Insurance policy would pick up the $500,000 not covered by your General Liability policy. The umbrella policy serves three purposes.
- It provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims.
- It drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims
- It provides protection against some claims not covered by the underlying policies, subject to the assumption by the named insured of a self-insured retention (SIR).
This typically provides several different types of crime coverage, such as: employee dishonesty coverage, forgery or alteration coverage, computer fraud coverage, funds transfer fraud coverage, kidnap, ransom, or extortion coverage, money and securities coverage, and money orders and counterfeit money coverage. Crime/Fidelity coverage protects organizations from loss of money, securities, or inventory resulting from crime. Common Crime/Fidelity insurance claims allege employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.
Professional Liability (Errors and Omission or E&O)
This is the insurance that covers your company, or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results. For doctors, dentists, chiropractors, etc., it is often called malpractice insurance.
Once you’ve determined your exposure to any of these risks, and you’ve elected to engage coverage accordingly, it makes sense to catalog the coverages in your contracts with suppliers and make clear what the suppliers’ responsibilities are with respect to compliance with all insurance requirements.
The final item you should ensure for your contract is that it provides the language to address indemnification. This section of the contract should state that the supplier indemnifies the contract holder, their client, and respective affiliates, directors, officers, employees, agents, and successors against any losses caused by the supplier and/or the supplier’s employees. This protects the contract owner for assuming the losses caused by the supplier. To indemnify someone is to absorb the losses caused by that party rather than seeking compensation from that party, or to compensate that party if something you do, or fail to do, causes them to experience loss, damages, or a lawsuit from a third party.
It is a lot to absorb, but remember, a stitch in time saves nine. So it is better to consider all these potentialities at the beginning of any partnership and get the agreement down on paper so that should any disruptions occur in the partnership relationship, all terms and remedies are clearly spelled out so as to avoid costly, time-consuming litigation later. For more information on how suppliers can help support MSP programs, check out this 12-step process.