January 27, 2014

Summary: To the extent insurers are willing, an alternate employer endorsement is a good way to protect entities that are involved in special employer situations; that is, where one entity borrows the employee of another entity and desires protection in the event the borrowed employee is injured while under the direction and control of the entity that has borrowed that employee. What complicates these kinds of relationships is that it is not always clear who is considered an employer of one or more leased, borrowed or lent workers, because the answer hinges on a number of variables. This article discusses these variables with accompanying court decisions.

Also discussed is the alternate employer endorsement first introduced in the mid-1980s by the National Council on Compensation Insurance (NCCI) for use in conjunction with the standard workers compensation and employers liability policy.

In addition, other ways work-related exposures can be handled when insurers refuse to issue this kind of endorsement or when it cannot be issued for some reason are also noted.

Topics covered:
Introduction
Establishing the special employer relationship
Alternate employer endorsement
Cases—problems—commentary
Cases—problems—commentary two
U.S. Longshore and Harbor Workers Compensation Act
Maritime employment
Steps to be taken when endorsement is not available
Conclusion

Introduction

The purpose of this article is to discuss the alternative employer endorsement (AEE) issued in conjunction with the state workers compensation and employers liability policy when a special employer relationship is created. A special employer relationship exists when one employer borrows an employee who has an existing employment relationship with another employer. In such a case (as noted by Arthur Larson in Workmens Compensation Law, Section 48.10), the former, or borrowing employer, is known as a special employer, while the latter as a general employer.

This general-special employer relationship, where an employee is performing services for each employer separately, also is viewed as a dual employment. This is not to be confused with a joint employment relationship where an employee is performing work for the mutual benefit of both employers at the time of an accident.

An alternate employer endorsement becomes significant when it is unclear which of the two employers (in a general-special or dual relationship) had control of the employee at the time of an accident. The endorsement also can be viewed as if there were two named insureds on a workers compensation policy enjoying immunity from suit.

As will become clear in this discussion, the AEE is the savings grace, so-to-speak, for an alternate employer. This is because the alternate employer is still protected when employees do not accept workers compensation benefits as the final settlement, but instead file suit despite those benefits—to the extent permitted by statute.

The common rationale for employees viewing workers compensation coverage as unacceptable is that they can often make a greater recovery for damages by filing a liability claim for negligence against the alternate employer. Evidence of this is especially prevalent with the CGL policy (when an alternate employer endorsement has not been issued). Thus, when the temporary employee is not considered to be an employee, as defined, and not subject to the employer's liability exclusion, it often opens the door to suits against the policy's insured. (When an alternate employer endorsement is not issued either because it is not requested, an insurer refuses to issue one, or when it is simply not available from state workers compensation funds, there are other steps that need to be taken.)

Establishing the Special Employer Relationship

The question of who is considered an employer of one or more leased, borrowed or lent workers is not always clear, because it hinges on a number of variables that need to be taken into account, such as control and right to control thereof. While there are differences by jurisdiction, it is generally accepted (according to Arthur Larson and Lex K. Larson, Larson's Workers Compensation, Vol. 2.ww.8, section 48) that when an employer (special employer) borrows and employee from another employer (general employer) or a general employer lends its employee to the recipient special employer, the special employer becomes liable for workers compensation only when the following three conditions are met: (a) the employee has made a contract of hire, express or implied, with the special employer; (b) the work being done is essentially that of the special employer; and (c) the special employer has the right to control the details of the work.

It is not always a simple matter to determine these criteria.

In the case of Robert J. Ray and Amelia Ray v. Marcus Thomas, 2009 WL 2600521), for example, the status of a special employer was held not to apply because there was no evidence of a contract of hire, implied or expressed.

Briefly, Ray, who was employed by a contracting firm, was injured while working on the premises of another company. The injury came about when Thomas, an employee of this latter company, while transporting a pipe by a crane, dropped the pipe. After receiving statutory workers compensation benefits, Ray filed a complaint against Thomas alleging negligence and loss of consortium for his spouse. Thomas maintained that Ray's exclusive remedy was the statutory workers compensation benefits, because Ray was a special employee of the company for whom Thomas was employed and on whose premises Ray was injured.

In determining whether a special employer relationship existed, the court noted that the second and third of the above conditions had been met, but not the first one requiring that the employee had agreed to a contract of hire with the special employer. This was the court's decision even though Ray had reported to the premises every day for work and had received assignments from his supervisor, Thomas. The reason there was no contract of hire, even though Ray believed there was a contract, was that there was no evidence that Ray was aware of the contract's details.

Who had control at the time of injury also is often difficult to determine until after the fact, particularly with borrowed and lent employee arrangements, where employment is temporary, such as with staffing agencies. Much depends, for instance, on the three conditions previously mentioned, the first two of which can be determined prior to an injury and claim, but not the third one dealing with control. Thus, it is only after a claim is made and an investigation is conducted that one may be able to conclude who had control and should have had statutory workers compensation in place, the general or special employer. Sometimes, litigation is necessary to make the correct determination.

The issue of identifying who has control at the time of injury should not apply to a professional employer organization (PEO). A PEO involves a joint relationship where both the PEO and the client generally retain some right of control over workers and it usually involves long-term employments. This is not to say that the endorsement has not been issued in a PEO situation. However, with no guesswork as to whom the employer will be in a joint relationship, the alternate employer endorsement would appear to be unnecessary. Both parties also will likely have workers compensation insurance in place, particularly if it is mandatory for this dual employer engagement.

An employment arrangement where it is usually easier to determine whether a special employer relationship exists is with a joint venture, which is a partnership for a limited purpose. It is necessary, however, that the joint venture's contract convey the understanding that the employees' work is for the sole purpose of the joint venture, and is under its sole control. In most other cases, however, determining whether a special employer relationship exists where the special employer is liable is likely to be a guessing game.

One way to eliminate the guess work is for the general employer to have an alternate employer endorsement issued with its workers compensation policy for the benefit of the special employer. This assumes, of course, that an insurer is willing to issue this endorsement, because some insurers are reluctant to do so as freely as they might have been in the past. The reason for this reluctance may simply be a lack of understanding the rationale for the AEE and how it actually works. To the extent this endorsement can be issued, the request for it is likely to come from the special employer, who may demand such an endorsement as a condition precedent of some work arrangement.

Alternate Employer Endorsement

The Alternate Employer Endorsement was introduced in the mid-1980s by the National Council on Compensation Insurance and designated as WC 00 03 01 A. When issued in conjunction with the workers compensation and employers liability policy, it is said to apply to bodily injury to the named insured's employees while in the course of special or temporary employment by the alternate employer in the state shown in Item 2 of this endorsement's schedule.

In effect, by issuance of this endorsement to the general employer's workers compensation and employers liability policy, the statutory benefits of this latter policy are extended to the employees of a general employer, if injured while in control of a special employer (or alternate employer), who is identified in the schedule of this endorsement. In other words, the policy's coverage will apply as though the alternate employer were the named insured. If the insurer of this endorsement is not permitted to pay the benefits directly to the persons entitled to them, it promises to reimburse the alternate employer for those benefits that were required.

It is, of course, recommended that an alternate employer maintain statutory workers compensation, particularly since this endorsement is not intended to satisfy the alternate employer's duty to secure its obligations under the workers compensation law. In fact, this endorsement also states that the insurer will not file evidence of this insurance with any governmental agency on behalf of the alternate employer.

The fact that the alternate employer maintains its own workers compensation insurance should not create an “other insurance” issue. The reason is that the endorsement specifically states that the insurer will not ask any other insurer of the alternate employer to share with a loss covered by the endorsement. As some special employers have learned, however, not all insurers willingly provide defense without some reluctance.

Since the insurer of the workers compensation and employers liability policy to which this endorsement is attached promises to pay the statutory benefits to qualified employees who sustain injury while in the course of their employment under the control of an alternate employer, it stands to reason that this insurer will be owed a premium by the general employer for those employees. The insurer that issues the workers compensation and employers liability policy, in other words, is not giving anything away by having to pay the benefits prescribed by statute to any employee injured while within the control of the special employer.

What the insurer is doing, in effect, by issuing this endorsement is eliminating a potential gap created by the special-general employer relationship if it turns out the special employer was in control of the borrowed employee at the time of the accident. In doing so, the insurer is, of course, giving up its subrogation rights. As a result, instead being able to sue the special employer for damages in tort, the injured employee's only recourse is the statutory benefit of the workers compensation policy. It is as if the special employer were the general employer.

The idea of an alternate employer endorsement is just a way for a general employer to protect the special employer in a situation where the latter mandates some form of protection against suit by a borrowed employee. The endorsement also prevents an insurer from subrogating against the special employer. The special employer, in other words, is not considered a third party and, instead, is insulated from tort liability just as if it were the general employer.

Actually, the question of who pays the employee becomes moot, because the net result is almost invariably that the special employer pays for the services received and the employee ultimately gets his or her wages. Whether the special employer pays the general employer who, in turn, pays the employee, or the special employer pays the employee directly, the difference is said to be one of mechanics and not of substance. (See Ruble v. Arctic General, Inc., 598 P.2d 95 (1978).

Apart from the necessary conditions that establish a general-special employer relationship, as mentioned earlier, activating the coverage of this endorsement requires that the following first two items be completed: (1) The schedule of the endorsement must be completed with the name and address of the alternate employer, unless the named insured is in the business of providing temporary workers. In that event, the words “all” or “any” can be inserted under the endorsement schedule; (2) Coverage applies only to the state of temporary or special employment shown in Item 3.A. of the Information Page. If more than one state is listed and the endorsement applies in one state or a different state than the one(s) listed in 3.A., it needs to be inserted on the alternate employer endorsement. Coverage of this endorsement can be limited to a specific job or contract (except in Wisconsin) by identifying either under the schedule of this endorsement.

Under the explanatory notes of the alternate employer endorsement, NCCI gives three examples of the endorsement's usage.

First, the named insured of the workers compensation and employers liability policy is a contractor who is to perform work for an oil company. The oil company wants to be protected in the event any claims are brought against it by the contractor's employees for work-related injuries and, therefore, requires the alternate employer endorsement.

Second, a property management company is required by the property owner to make it an alternate employer in the event of any claims made against the owner for work-related injuries to the property management company's employees.

Third, a temporary office staffing agency is required by its customer to show it as an alternate employer under the agency's workers compensation and employers liability policy.

Cases—Problems—Commentary

One of the more instructive ways to demonstrate the nature and scope of insurance issues related to a particular subject is to search out relevant court decisions. In that vein, there are a number of disputes over the alternate employer endorsement that have been litigated.

In some of those cases, employees eligible for workers compensation benefits attempted to sue the alternate employer in tort presumably for the prospect of obtaining greater damages than what are typically available in the way of workers compensation benefits. Also, despite the fact that the alternate employer endorsement is to apply on a primary and noncontributory basis, some insurers still try to sidestep their obligations for one reason or another.

(As has been noted, there also is a tendency to equate the coverage of the AEE with named or additional insured coverage. It is true that the effect of such an endorsement is to consider the alternate employer as a named insured without specifically having that status and note, that some courts have indeed held that an alternate employer is a policy named insured).

In Regina Miller v. The Unity Group Inc., 2007-UIP-384 (Ct. App. S.C.), a hotel housekeeping company that serviced hotels (Unity) had an agreement with a firm that supplied temporary employees (MBA). Since the contract between MBA and Unity required MBA to maintain workers compensation insurance, a certificate of insurance was issued by MBA's insurance representative listing Unity Group as a Certificate Holder Additional Insured.

A dispute arose after the claimant, who was injured on two separate occasions while performing services for Unity, made claims against Unity for these two work-related injuries. One of the questions before the court was whether Unity was a named insured on the workers compensation and employers liability policy issued to MBA. This particular policy contained an alternate employer endorsement which stated that workers compensation insurance would apply if an employee of MBA were injured “in the course of special or temporary employment by the alternate employer.”

Since neither the policy nor the endorsement defined the term “alternate employer”, the court decided that the endorsement created an ambiguity and, therefore, held that Unity qualified as an alternate employer. This decision was supported by the certificate of insurance, which not only referenced the workers compensation policy of MBA, but also stated that “coverage is provided for only those employees leased to but not subcontractors of the Unity Group”. Thus, from the court's perspective, both the insurance certificate and the ambiguity created by the alternate employer endorsement supported the conclusion that Unity was an insured.

(When a certificate of insurance is completed for these kinds of employment relationships, those who complete certificates should not assume or state anything on the certificate that is not also stated in the policy. In other words, the alternate employer should not be shown as a named insured or insured [which seems to be tossed around as being the equivalent of a named insured]. When an alternative employer endorsement is issued, it needs to be identified on the insurance certificate and nothing more. Once there is an attempt to clarify this endorsement's impact with such a description as named insured, insured, or additional insured, it can cause problems to the person who completes the insurance certificate.)

Although an alternate employer endorsement was sufficient for co-employers of a leasing arrangement to obtain immunity for an employee injury, additional steps were taken to seek that objective in Brown v. Aztec Equipment, Inc., 921 S.W.2d 835 (1996).

Through client service agreements with small businesses, a staff leasing firm employed the existing work force of its clients and then leased them back to carry out the client's business. This relationship situation existed when the staff leasing company contracted with a business involved in the repair of oil and gas equipment (client).

Under this arrangement, the staff leasing company agreed to carry workers compensation insurance covering all of its employees furnished to the client. The client service agreement also included a provision that the staff leasing company was the employer for some purposes and that the client would be considered the employer for certain other purposes. It also indicated that both the staff leasing company and the client were co-employers for still other purposes.

An employee who was furnished by the staff leasing company signed employment agreements on two separate occasions. He also agreed that for purposes of workers compensation insurance, he was an employee of both the staff leasing company and the client. These agreements stated that in the event of any injury, the employee agreed that his sole remedy was under the policy of the staff leasing company under the theory that both the staff leasing company and the client were co-employers. Following injury on two separate occasions, the employee sought workers compensation benefits, but after learning he was not entitled to benefits (for reasons not stated in this court case), he brought suit against both firms who claimed immunity. It turned out that the alternate employer endorsement and the agreement signed by the employee were both sufficient to hold that both firms had immunity to suit.

Cases—Problems—Commentary Two

The cases discussed here deal with issues of improper completion of the alternate employer endorsement, the endorsement's application to the longshoreman and harbor workers coverage accompanying a workers compensation and employers liability policy, and the steps to take when the endorsement cannot be obtained or is otherwise unavailable.

It needs to be kept in mind that the primary goal is to ensure that all employees obtain their compensable benefits while working under these employment arrangements. The secondary goal is to protect the interests of the alternate employer.

The alternate employer endorsement can be a spoiler for injured workers who are involved in situations involving special employments, such as temporary staffing companies. (General employers are also commonly referred to as direct employers.) This is not a universal conclusion but certainly a situation that is intended by this endorsement. A case in point is Antonio Perez Molina v. State Garden, Inc., 2013 WL 5567551. Molina, a general employee of American Resource Staffing Network (ARS), an entity in the business of providing temporary staffing, was assigned to provide on-site services to State Garden and was injured during the course of providing such services. ARS maintained a workers compensation and employers liability policy, which was amended with the alternate employer endorsement stating in part: “This endorsement applies only with respect to bodily injury to your employees while in the course of special or temporary employment by the alternate employer named [below] . . . Part One (Workers Compensation Insurance. . . will apply as through the alternate employer is insured.”

The alternate employer endorsement on ARS's policy specifically identified State Garden as the alternate employer. Molina's employment with ARS was further subject to the terms of a signed waiver and release agreement, which provided in pertinent part as follows: “In recognition that any work related injuries which might be sustained by me are covered by state workers compensation statutes, and to avoid the circumvention of such state statutes which may result from suits against customers or clients of [ARS], based on the same injury or injuries, and to the extent permitted by law, I HEREBY WAIVE AND FOREVER RELEASE ANY RIGHTS I MIGHT HAVE to make claims or bring suit against any client or customer of [ARS], for damages based upon injuries which are covered under such workers compensation statutes.”

It was undisputed that under the workers compensation act, ARS, the general employer was immune from any common law action arising out of Molina's injury. Molina, however, brought suit against State Garden, arguing that the statutory workers compensation bar did not apply to this entity (State Garden), because it was not his direct employer. State Garden, in turn, maintained that, while it was not Molina's direct employer, it nonetheless enjoyed immunity under the act by virtue of the alternate employer endorsement issued in conjunction with the ARS policy.

This court agreed with the argument of State Garden. In doing so, it stated that there was very limited Massachusetts case law that examined whether an entity named in an alternate employer endorsement to a workers compensation policy enjoyed the same immunity as the direct employer. What Massachusetts case law did exist, the court said, as well as authorities from other jurisdictions, led it to conclude that named alternate employers such as State Garden faced no common law liability through the exclusivity provisions of the act.

The injured employee, Molina, cited two cases that fell short of the mark: Numberg v. GTE Transport, 34 Mass. App. Ct. 904 (1993) and Lang v. Edward J. Lamothe Co., 20 Mass. App. Ct. 231 (1985). It was stated by the court that, while both Numberg and Lang recited the familiar principle that only direct employers, and not special employers, are immune from common law personal injury suits under the workers compensation act, these decisions did not address whether the same result would have occurred had an alternate employer endorsement been issued.

The case of Allied Van Lines, Inc., et al., v. Fairfield Insurance Company, 2010 WL 1254633 involved a dispute over which of two policies covered claims for injuries. An independent contractor (Jenkins) was the driver of a truck owned by (Allied) who, concerned for his health, hired another person (Storey) to assist in the loading and unloading of his van. While on a job, an accident occurred whereby Storey suffered serious injuries. The insurer (Fairfield) paid benefits under an occupational accident policy and not under the workers compensation policy.

Having received benefits under the occupational accident policy, Storey was not barred from recovery in tort and, therefore, filed suit against Allied and others for damages. The defendants argued that since Storey was injured in the course and scope of his employment, he should have been paid under the workers compensation policy, which also would have barred Storey's suit. The trial court entered judgments against all defendants.

In the appeal, Allied and its insurer sued Fairfield for breach of contract in failing to pay under the workers compensation policy, which they claim exposed them to the payment of legal costs and a settlement of $200,000. The fallacy of this argument, according to the court, was that even if Allied were an insured under the alternate employer endorsement, and even if Storey had received workers compensation benefits, his effort to contest his employment status would have allowed him to pursue a tort remedy.

The appeals court also concluded that Allied was not an insured under the workers compensation policy issued by Fairfield to Jenkins by virtue of a certificate of insurance that referenced an alternate employer endorsement. While it was true that this endorsement listed Allied as an alternate employer, the endorsement also stated, “[t]his endorsement changes the policy to which it is attached and is effective on the date indicated on the Information page unless otherwise stated”. The court noted, however, that the endorsement was not listed on the information page of the policy and, therefore, lacked an effective date. In light of the fact that the certificate did not amend, extend or alter the coverage afforded by the policies listed, Jenkins was the only insured. Since the alternate employer endorsement was not in effect, Allied's breach of contract allegation failed.

There is a question about the court's comment that even if Allied were an insured under the alternate employer endorsement, and even if Storey had received workers compensation benefits, his continued effort to contest his employment status would have allowed him to still pursue a tort remedy. This is not so clear. If the endorsement had been shown to be in force, Allied would not have had to defend itself and pay those damages in settlement. It would have been Fairfield's obligation under this endorsement to do so. Also, it is important to point out that if the workers compensation policy's information page is completed to reflect the alternate employer endorsement, it is necessary that the endorsement be completed properly. Someone dropped the ball in this case.

It is also necessary that the alternate employer endorsement is completed to reflect all of the states where it is to be applicable, particularly when an entity's workers compensation insurance is written by two or more insurers. This was the issue addressed in the case of Metro Staffing, Inc. v. Workers' Compensation Appeal Board, et al., No. 2145 C.D. (Commonwealth Ct., PA. 2007) where, despite the fact that two insurers handled the workers compensation insurance, neither one had to pay benefits.

Metro Staffing, Inc. (employer) was a temporary employment agency with offices in Pennsylvania and Delaware. The claimant was hired by the employer at its Delaware location, which was covered by CNA through an independent producer, but assigned to work at Tasty Baking Company in Pennsylvania where he was injured. The employer's statutory coverage for Pennsylvania was purchased from the state workers compensation insurance fund (SWIF).

The policy issued by SWIF provided that it covered all of the employer's workplaces in items 1 and 4 of the information page; and it covered all other workplaces in item 3.A., unless the employer had other insurance or was self-insured for such workplaces. Item 3.A. stated that part one of the policy (workers compensation) applied under the law of Pennsylvania. The alternate employer endorsement issued in connection with the SWIF policy provided coverage for employees while in the course of special or temporary employment by the alternate employer in the state named in item 2 of the endorsement's schedule. The baking company was not named in this endorsement. (The SWIF knew there was an exposure in Pennsylvania but did not realize it was with the baking company.) Item 3.A. of this policy, on the other hand, applied to all workplaces in the state of Pennsylvania, unless other insurance was secured for such workplaces.

Thus, the SWIF policy covered only the employer's workplaces identified in items 1 and 4., those identified in the alternate employer endorsement, which was not issued for the baking company, and Pennsylvania workplaces not covered by other insurance. The Delaware office, where the claimant was employed, was not listed in items 1 or 4 of the SWIF policy. The CNA policy, on the other hand, was issued solely for the state of Delaware. With the alternate employer endorsement not being applicable to the baking company, the employer was left to retain the consequences of this injury and of the oversight in failing to properly designate the Delaware office on the SWIF policy.

The point to keep in mind here is that when policies have to split among different insurance producers or insurers, coverage gaps are more likely to occur than if all of the same coverages were consolidated with one insurer and producer. Unfortunately, it is not always possible to do so. This means that extra care must be taken to fill any gaps, since they can be costly, particularly with respect to workers compensation where the benefits payable for long periods can be enormous.

Another case that could have provided a special employer with protection had the endorsement listed that employer by name is Salitsky Alloys Inc. v. Metz Personnel, 29 Mass. L. Rptr. 558 (Mass. Super. Ct. 2012). Briefly, Metz leased employees to client much like a temporary staffing agency. The injured party was a direct employee of Metz whom Metz had leased to Salitsky and who was injured during the course of his leased employment. The employee sued Salitsky, claiming that the immunizing exclusivity provisions of the workers compensation act did not apply, because Salitsky was not his direct employer. The contract between Metz and Salitsky included an alternate employer endorsement, which could well have relieved Salitsky from common law liability. The parties, however, neglected to designate Salitsky as the alternate employer. The court accordingly held that, because the endorsement did not specify Salitsky by name as the alternate employer, the company was not entitled to immunity under the workers compensation act.

This case, by the way, influenced the court's decision in the earlier discussed case of Molina v. State Garden, which held that the special employer was protected by the alternate employer endorsement. The reason why was that had the endorsement specifically named Salitsky as the special employer, the company would have been immune from suit.

U.S. Longshore and Harbor Workers Compensation Act

The alternate employer endorsement, introduced by the NCCI, is meant to apply to the territorial scope of the standard workers compensation and employers liability policy, which is statewide and does not encompass any federal jurisdiction.

When this endorsement is issued in conjunction with the standard workers compensation and employers liability policy, another endorsement applicable to the Longshore and Harbor Workers Compensation Act (LHWCA) also must be attached.

Briefly, the U.S. Longshore and Harbor Workers Compensation Act, also commonly referred to as the Longshore Act or LHWCA, is a federal statutory workers compensation program much like the standard state program. In some cases, an employee could be subject to state and federal compensation benefits. In other words, the LHWCA can supplement the benefits payable by the state compensation act.

When the Longshore endorsement is issued in conjunction with the standard workers compensation and employers liability policy, the endorsement amends the definition of workers compensation law to include the LHWCA with operations in any state designated in the endorsement's schedule. While the alternate employer endorsement is meant to apply to the state exposures of the standard workers compensation and employers liability policy, the Longshore endorsement could also encompass employments within the LHWCA.

In the following case at least, its use was not challenged and applied to the federal act; the case is Sherman v. Henry Marine Service, Inc., 6 So. 3d 17 (2007). The employer entered into a staff leasing agreement with AMS. Pursuant to this agreement, AMS reserved the right to direct and control leased employees assigned to a specific job. After the agreement was consummated, AMS began treating the employees as being leased, by directly paying their wages. AMS would then invoice the employer for the amount that include the employees' weekly wages, payroll taxes, workers compensation insurance, and a charge for the services performed by AMS. The employer would then pay the invoice. Although AMS acknowledged in the agreement that it had informed all leased employees of this arrangement, the employee involved in this claim stated that he had never met anyone from AMS.

Pursuant to this agreement, AMS purchased a workers compensation policy that included LHWCA coverage. Attached to the policy was an endorsement containing some of the identical wording of the NCCI alternate employer endorsement, (Many court cases do not appropriately identify the documents that are quoted so it is difficult to be definitive as to whether it was the NCCI endorsement. However, since there appears to be no other such endorsement in use, the endorsement was, in all likelihood, the one introduced by NCCI.)

The policy did not expressly name the employer as an alternate employer or an additional insured. A schedule to the endorsement, however, defined the term “alternated employer” as “ALL USERS OF TEMPORARY EMPLOYEES OF THE NAMED INSURED”, situated in Alabama. It also stated that the endorsement was “APPLICABLE TO EMPLOYEES LEASED TO CLIENT COMPANY UNDER AN EMPLOYEE LEASING ARRANGEMENT”. The endorsement further provided: “The insurance afforded by this endorsement is not intended to satisfy the alternate employer's duty to secure its obligations under the workers compensation law. We will not file evidence of this insurance on behalf of the alternative employer with any governmental agency.”

After the employee sustained injuries in an accident while working on a vessel owned and operated by the employer and was paid benefits by AMS under the LHWCA, the employee filed an action against the employer seeking additional damages based on a variety of allegations. He also asserted that the employer failed to secure LHWCA coverage thereby exposing itself to maritime tort liability under 33 U.S.C. Section 905(a).

The employer, on the other hand, asserted that the policy provided LHWCA coverage under the terms of the endorsement's schedule. It also asserted it was a user of temporary employees of the named insured, AMS, and that the employee was a leased one within the terms of the employee leasing arrangement. The employer also pointed out that the insurer actually paid the employee all of the LHWCA benefits to which the employee was entitled. These facts, the employer argued, showed that despite the language of the endorsement, it did fulfill its obligation to obtain LHWCA benefits for its employees.

The trial court granted the employer's motion which the Court of Civil Appeals affirmed.

As a side note, a case that was taken into consideration, because it presented an identical issue to the foregoing case is Hudson v. Forest Oil Corp., 2003 WL 21276385. In this case, a labor supply company assigned Hudson to work on an oil production platform for Forest Oil. After Hudson was injured in the course of his employment, he received LHWCA benefits through the labor supply company's workers compensation policy, which was funded by Forest Oil. Hudson then filed an action against Forest Oil seeking tort damages for his injuries. Forest Oil defended on the ground that it was immune from tort liability as a borrowing employer that had secured its liability for LHWCA benefits through its arrangement with the labor supply company.

Under these facts, the court held that Forest Oil was a borrowing employer entitled to tort immunity, even though it had only indirectly paid for the insurance covering Hudson. In doing so, the court stated: “[I]t is irrelevant for purposes of the present motion whether or not Forest Oil [i.e., the borrowing employer] secured payment of workers compensation for its borrowed employees. The labor supply company, i.e., the formal employer provided Hudson with compensation benefits through its insurer. . . Hudson's exclusive remedy for the injuries he suffered. . . is the workers compensation benefits he had already received. Accordingly, [the borrowing employer] was entitled to tort immunity under Section 905 (a), just as if it were the general (original) employer.”

It is important to mention here that the Alternate Employer Endorsement can be stretched to apply to LHWCA exposures, when the latter endorsement is issued with the standard workers compensation and employers liability policy, because LHWCA also provides statutory workers compensation benefits.

Maritime Employment

The alternate employer endorsement, however, is not likely to apply to maritime employments, such as injuries within the jurisdiction of the Jones Act encompassing the master and members of a crew. In fact, the endorsement could probably be effectively challenged by an insurer if there were an attempt to use it in relation to maritime employment. The weak link in any argument by an insured is that maritime employment exposures are limited to employers liability or, in other words, where the employer has to be sued for damages because of injury.

This is not to say that the alternate employer endorsement cannot be considered in maritime coverage disputes. These disputes do occur, especially when an entity is issued a standard workers compensation and employers liability policy and modified with the alternate employer endorsement, the Maritime endorsement, and other endorsements.

Two such maritime cases where the alternate employer endorsement was mentioned are Cal-Dive International, Inc. v. Seabright Insurance Company, 627 F.3d 110 (2010) and Landerman v. Liberty Services, Inc., 637 So. 2d 809 (1994).

The Cal-Dive case involved a dispute between two insurers, State National Insurance Company (SNIC) and Seabright Insurance Company (Seabright) over which one had the obligation to defend Horizon, the owner of the vessel, in a tort action. The dispute was triggered when Brown was injured and filed a Jones Act suit against Coastal Catering and Horizon for failing to provide him with a reasonably safe workplace aboard a vessel owned by Horizon. Coastal had entered into a contract to provide catering services for the vessel and had sent Brown to work on it pursuant to the contract. When Brown was injured, he filed suit against both companies (Horizon and Coastal) alleging that both were his employers.

According to the Horizon-Coastal contract, Coastal was obligated to defend Horizon, which Coastal did through SNIC, its maritime general liability (MGL) insurer. Horizon accepted SNIC's defense. Coastal also had in effect a maritime employers liability (MEL) policy with Seabright, which defended Coastal in this litigation. After this litigation was settled with Brown, with SNIC, and Seabright each paying 50 percent of the agreed settlement, SNIC sought reimbursement from Seabright for the costs SNIC incurred in defending Horizon.

SNIC argued that under the alternate employer endorsement in Seabright's MEL policy insuring Coastal, Seabright was obligated to provide a defense for Horizon. (The endorsement as stated in this case read identically with the one of NCCI.) SNIC argued that Brown's allegation that Coastal and Horizon were both his employers should have been interpreted as an allegation that: (1) Coastal was Brown's direct employer, and (2) Horizon was Brown's alternate employer. It therefore followed that because Horizon was Brown's alternate employer, the alternate employer endorsement should have required Seabright to defend Horizon.

Seabright refused to reimburse SNIC, arguing that a separate exclusion in its policy absolved it of defending Horizon, even if Horizon were Brown's alternate employer. The exclusion stated that the Seabright policy “did not cover bodily injury to your (named insured's) master and crew covered by a Protection and Indemnity (P&I) Policy or similar policy issued to you for your benefit”. This exclusion applied even if the other policy did not apply, because of another insurance clause, deductible or limitation of liability clause, or any similar clause, or self-insured retention. It also stated that this insurance did not apply as excess to any other Protection and Indemnity Policy or any other policy issued for the named insured's benefit. (A Protection and Indemnity Policy protects a vessel owner against a variety of liability exposures for damage to persons or property of others, including injury to the crew and damage to the cargo.)

Because Horizon maintained a P&I policy with AEGIS, covering the crew on its vessel, Seabright argued that the exclusion unambiguously freed it from any duty to defend Horizon. After Seabright refused to defend SNIC, SNIC and Horizon filed a lawsuit against Seabright to recover attorneys' fees SNIC incurred in defending Horizon. The district court granted SNIC's motion, holding that Seabright was obliged to reimburse SNIC for such sums it spent in the defense of Horizon. The court reasoned that Brown's allegation that both Coastal and Horizon were his employers was sufficient to assert a claim of alternate employer status under the policy's endorsement, thus triggering Seabright's duty to defend Horizon. The court further found that the alternate employer endorsement and the P&I exclusion in Seabright's policy were in conflict and created an ambiguity that had to be interpreted in favor of providing coverage for Horizon.

Seabright lodged an appeal in which the Court of Appeals reversed the lower court's decision and held in Seabright's favor. It was uncontested that Horizon had a P&I policy in effect at the time of the accident. With that fact, the court held that the P&I exclusion in Seabright's policy therefore excluded coverage. SNIC, however, argued that the exclusion only applied to Coastal, Seabright's named insured, and that the exclusion did not apply to additional insureds like Horizon. SNIC reasoned that the exclusion only purported to exclude coverage for bodily injury to “your” master and crew covered by a P&I policy issued to “you” for “your” benefit. SNIC argued that it was plain that reference to “you” and “your” in the exclusion only referred to Coastal, the named insured, and did not apply to additional insureds who had happened to have a P&I policy in effect.

The appeals court disagreed with that argument. It stated that the policy as originally issued was intended to cover Coastal, the named insured. But when endorsements, such as the alternate employer endorsement add additional insureds to the policy they, too, enjoy the same benefits and are subject to the same restrictions as a named insured, absent policy language to the contrary. The court therefore agreed with Seabright that its policy did not afford coverage to Horizon for Brown's claim. The court also stated that its conclusion was supported by the Louisiana Court of Appeals involving an almost identical insurance policy coverage dispute. That case is the Landerman case.

In that case, Landerman, like Brown, was injured while working on a vessel (barge) owned by an entity other than his payroll employer. The court found that the vessel owner was Landerman's alternate employer. The dispute was whether the alternate employer endorsement in the payroll employer's insurance policy required the insurer to defend the vessel owner even though the same policy of the vessel owner excluded coverage if the insured had a P&I policy in effect.

The vessel owner argued that, as an additional insured, it should not have been considered an assured under the P&I exclusion. The court stated, however, that when a maritime employer liability (MEL) policy or excess maritime employers liability (EMEL) policy does not specifically restrict the term “assured” to the named insured and does not define the term “alternate employer”, the alternate employer is considered to an assured. Therefore, the alternate employer was considered to be an insured and excluded from coverage in light of the P&I exclusion. The vessel owner also argued that the following language in the alternate employer endorsement rendered the P&I exclusion inapplicable: “We will not ask any other insurer of the alternate employer to share with us a loss covered by this endorsement”. (SNIC made the same argument in the preceding Seabright case.)

However, the Louisiana appeals court found: (1) the vessel owner, as Landerman's alternate employer, to be an insured; and (2) that because that alternate employer had a P&I policy in effect that covered its crew, coverage to the vessel owner was excluded by the P&I exclusion. The court reasoned that because the P&I exclusion was triggered, the alternate employer's loss was not a loss covered by the alternate employer endorsement. (Another case held to be in accord with this conclusion is Storebrand Arendel A/S v. Point Marine, Inc., 1990 WL 66401.)

Based on the foregoing two cases, it appears that the alternate employer endorsement's usage involving maritime insurance matters was not challenged, even though the Maritime endorsement does not provide workers compensation coverage.

Steps to be Taken When Endorsement Is Not Available

At times for a variety of reasons, the alternate employer endorsement may not be available as, for example, with workers compensation insurance written by a monopolistic state fund. (The single, most important advantage of this endorsement is that it views the alternate employer as if it were a policy named insured. As such, the alternate employer obtains defense on a primary and noncontributory basis, immunity from suit by the general employer's employee, and a built-in subrogation waiver.) If the endorsement is not available, the next best alternative would be for the alternate employer to obtain:

1. A contract of understanding between it and the general employer. This contract would also include the monetary arrangement. For example, the alternate employer may agree to reimburse the general employer for the workers compensation premium charge to the employees who will be working within the control of the alternate (special) employer;

2. A contract of understanding between it and each of the employee(s) of the general contractor who will be working within the control of the alternate (special) employer (this is an essential document in order to create the general-special employer relationship);

3. Proof of a workers compensation and employers liability policy and, when applicable, LHWCA and maritime general and excess liability policies;

4. A hold harmless and indemnity agreement between it and the general employer (the degree of such an assumption will depend on whether there is any applicable state anti-indemnity statute and exception;

5. A waiver of the general employer's rights of immunity specifically applicable to only the contractual relationship involved (the waiver is likely to be necessary because of the possibility of an action in tort and the fact that workers compensation commonly is the exclusive remedy; when effected, the general employer, in essence, waives its immunity granted by statute so as to become answerable to others (e.g., special employer), even after workers compensation benefits have been paid;

6. A waiver of subrogation to prevent the general employer's insurer from seeking payment of the benefits paid for an accident involving the general employer's employee while under the control of the alternate (special) employer;

7. Additional insured coverage under the general employer's CGL policy, including proof of contractual liability coverage encompassing the hold harmless agreement (a CGL policy may be especially helpful because a temporary employee is not an employee, which means that neither the workers compensation nor employers liability exclusions is applicable; some endorsements also may be necessary such as Coverage For Injury To Leased Workers, endorsement CG 04 24).

The general idea outlining the above steps is to ensure that the alternate employer is protected in the event of suit by an employee of the general employer after receipt of workers compensation benefits or before receipt if a state does not allow such actions after benefits are received. The more avenues taken, the better the chances of closing any gaps.

Conclusion

Considering how many dual employment relationships exist today involving borrowed and lent employees, also referred to as temporary employees, the alternate employer endorsement probably should be used more often than it is for general-special employer arrangements. Some of the ways in which this endorsement could be used have been mentioned.

(It is important to also note that this endorsement would be ideal for a project owner of an Owner-Controlled Insurance Program (OCIP) to avoid having the owner defend itself and argue, where appropriate, that it is a statutory employer to contractors involved in the project.)

Taking a closer look at the concept of the alternate employer endorsement, there appears to be no better way to protect the special employer who has borrowed a temporary employee of another employer than with this endorsement. Simply stated, this endorsement enables a workers compensation and employers liability policy to essentially serve two masters or, in other words, function as though the policy includes two named insureds, rather than the usual one. As a named insured, the alternate employer who has borrowed a temporary employee of another has the same immunity as the employer from whom the employee was borrowed. If compensation benefits can be rejected, thereby permitting the employee to sue for damages, the alternate employer obtains coverage for its defense, just as would be the case for the general employer.

One reason the alternate employer endorsement might not be as widespread as it might otherwise be is the reluctance of insurers to issue the endorsement. Some insurers, as a matter of principle, simply do not like giving coverage on a primary and noncontributory basis, with a subrogation waiver, to someone other than the policy's named insured. If one looks at this relationship more closely, however, the insurer issuing the endorsement is not giving any coverage away.

The insurer of the general employer who lends one or more employees is being charged a premium for those employees whether they are working for the general employer or the special employer. The fact the special employer ends up paying the premium for the workers compensation insurance is of no significance, since the insurer is still collecting the premium dollar. If it turns out that a temporary employee decides to sue the special employer instead of keeping the statutory benefits, the action, to the extent it is permitted, turns to the employers liability part of the workers compensation policy, since the alternate employer endorsement views the special employer as the policy's named insured.

In the absence of this endorsement, the special employer would likely have to rely on its own CGL policy, which does not exclude claims or suits brought by temporary employees. This is the reason why there are so many cases dealing with the question of whether an injured person was considered a temporary employee at the time of an accident. How insurance recoveries are handled here and who has the ultimate responsibility for payment is something that has to be considered at the time these general-special employer relationships are initiated.

When this endorsement cannot be issued for whatever the reason, it becomes more difficult to achieve the same or similar result that would exist had the endorsement been issued. To be frank, without the alternate employer endorsement, there are likely to be more gaps in the various contracts and coverages required than might otherwise exist. Finally, although this discussion emphasizes the ways a special employer can better protect itself in a dual employment relationship, it should be kept in mind that the primary objective of the coverage discussed is to ensure that the injured employees are promptly and fairly paid for their compensable injuries and not otherwise denied what is due them.