It appears that general contractors are attempting to use the Alternate Employer endorsement like an Additional Insured endorsement. When should you allow it?
A carrier notices more and more requests for the Alternate Employer endorsement on workers compensation policies. It appears that general contractors are attempting to use it like an Additional Insured endorsement.
Q: We have a current request to add a project owner as an alternate employer. Should we consider allowing it?
A: You’re right—general contractors and property owners are requesting the Alternate Employer endorsement more and more in place of the unavailable Additional Insured endorsement. It is not being requested due to any “borrowed servant” exposure.
I understand your reticence in attaching the endorsement, but you’re potentially better off if you allow it—especially if you also write the commercial general liability on the subcontractor.
Consider it from the perspective of a third-party-over claim. An employee of the subcontractor sustains an injury on the jobsite and is covered by their direct employer's workers comp policy under sole remedy. But because sole remedy applies only to the employer, the injured worker sues the general contractor for something like failure to maintain a safe and healthy work environment. However, because the general contractor contractually transferred the risk of this loss to the subcontractor, the subcontractor's CGL is required to respond because of the coverage granted in the definition of “insured contract.”
So not only has your insured's workers comp policy paid, so, too, has the CGL in defense of the general contractor, as required by the contract. If the carrier provides both the GL and the workers comp, you pay twice.
However, if the Alternate Employer endorsement is attached to the workers comp policy, the upper-tier general contractor becomes an insured on the lower tier's workers comp policy and is also, theoretically, granted sole remedy protection. The injured party gets paid once under workers comp, and because the general contractor is a listed employer, the employer shouldn't recover any more.
The only person hurt is the plaintiff's attorney, which doesn't hurt anyone's feelings. I don’t believe this issue has really been tested in court, but until it is, more and more upper-tier contractors are going to ask for this protection.
I agree that the upper tier is not the employer, but you wouldn't have to pay twice under workers comp for the same claim. Maybe it will avoid the third-party-over.
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, 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.