What are an agent’s obligations if it appears clear a business is improperly categorizing employees and not providing workers compensation coverage for them?
Q: In the July Independent Agent magazine, there was a You Asked article, "How do you determine if an employee is an independent contractor?" What are an agent's obligations if it appears clear a business is improperly categorizing employees and not providing workers compensation coverage for them?
Response 1: Insurance agents have a “general duty to use reasonable skill, care and diligence to procure the insurance requested by the insured." This duty includes following the insured's instructions and “acting in good faith."
However, in this instance, I think “acting in good faith" requires you to advise a client clearly—in writing—that continuing this practice could subject them to legal liability and potential fines. I also think you need to insist on the proper classification of workers comp policies, because of, among other reasons, your contractual relationships with your insurers. Some clients are not worth having.
Response 2: In that situation, what many agents do is refuse to write any coverage at all and politely ask them to take their business elsewhere. Other agents might have them sign a refusal of coverage. It's your business decision, but you can be sure if something happens they will be quick to blame you for not providing them the coverage.
Response 3: The agency must document its explanation to the insured carefully and thoroughly and present the facts truthfully, correctly and in full to the underwriter. You can decide if you want to insure any entity that is not playing by the rules and as advised.
Response 4: You need to advise them they have a workers comp and a potential tax problem. Make sure your file is documented.
Response 5: If an insured is misrepresenting their workers' status, what else are they misrepresenting to you as an agent?
In terms of coverage, many commercial general liability policies expressly exclude injury to an independent contractor. When the worker isn't an employee, this issue emerges in ways you never want to experience. It may be time to walk away from the account.
Response 6: Don't have them as a client if you believe that's true. It's not your call.
Response 7: My first suggestion is that you familiarize yourself with the state-by-state information available at WorkerClassification.com.
If you feel that a business is misleading the underwriter, explain to that business what the law and their duties are, and that as a representative of the insurer you are obligated to correct the situation.
Response 8: Put your opinion in writing and advise the client to speak to an attorney to decide legal status. Ideally, you advise—and if they don't do what you believe to be is legal, fire the client.
This question was originally submitted by an agent through the Big “I” Virtual University’s (VU) Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.