An agent insures 15 medical offices in the state. Because different groups of investors own each office, there is no basis for combinability—each office is required to carry its own workers compensation policy.

Occasionally, one office (Office A) loans an employee to another office (Office B) on a short-term basis. Office A pays the employee, but is reimbursed by Office B. The loaned employee's payroll does not appear on Office B's audit. The insurance company recently compared claimants against the audit and found that an injured employee's name was missing from the audit.

Q: Should Office A have presented the claim, or should Office B account for the payroll by showing its reimbursement to Office A and making the claim?

A: Who pays the employee and who reimburses whom is somewhat immaterial. The real questions are: Who is considered the "employer" at the time of the injury? And which policy should cover the injury?

To answer both questions, first remember there are four types of employees:

• Direct employees: workers on the regular payroll
• De facto employees: employees based on the facts of the relationship
• De jure employees: employees because the law says they’re employees (for example, an upper-tier contractor is statutorily required to provide workers comp benefits to the employees of an uninsured lower-tier contractor
• Special employees, or borrowed servants: an employer-employee relationship created by direct control

Absent evidence to the contrary, the original (direct) employer is presumed to retain control and take responsibility for providing workers comp protection. But the weight of evidence may shift this responsibility to another party based on a three-part test:

1. Has the direct employer volunteered or directed the employee to work for the special employer, and has the employee agreed to such assignment?
2. Is the work in question essentially that of the special employer?
3. Does the special employer have the right to control the details of the work?

If “yes” is the answer to all three questions, the employee is a borrowed servant and the party for whom the borrowed servant is working is the special, or doctrinal, employer. This makes the special employer responsible for providing the workers comp protection.

In this case, it appears a special employer/special employee relationship is created when the employee is placed under the direct and absolute control of another practice. The loaned worker is a "borrowed servant" and the employer to which they are loaned is considered the special or doctrinal employer. Thus, Office B is responsible for providing workers comp protection to the worker.

One other option: Each office's workers comp policy can be designed to limit responsibility to only the direct employer, requiring it to account for the payroll and take responsibility for any injury.

To assign or limit responsibility to the direct employer—and remove responsibility from the special employer—attach the Alternate Employer endorsement (WC 00 03 01A) to the policy of any office that loans employees to other offices. Using the legal names, specifically list any office to which an employee is loaned in the endorsement.

Essentially, the Alternate Employer endorsement extends insured status to the entities named in the endorsement—but only for the employees loaned to them. It does not remove the special employer's responsibility to purchase workers comp for its own employees. Therefore, when working for any entity specifically named in the endorsement, Office A’s employee is protected by, and included in the audit for, the Office A workers comp policy.

Chris Boggs is executive director of the Big “I” Virtual University (VU).

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.