Insureon Blog

Why Lawyers Help: Language vs. Common Sense in General Liability Coverage

18. February 2015 08:10

woman at a farmers' market

By now, you're probably used to hearing about worker misclassification affecting Workers' Compensation Insurance. After all, most state laws require employers to cover all their employees with this policy, so if you're sued over misclassifying an employee as an independent contractor, you can be fined for neglecting to offer them Workers' Comp benefits (in addition to a host of other penalties – more on that here: "Labor Department Helping States Crack Down on Worker Misclassification").

What we don't often hear about is how worker classification can affect other insurance policies your business has. To illustrate that, let's look at a recent example.

A Hayride Gone Haywire: On General Liability Insurance and Worker Classification

According to a report by Claims Journal, a worker hired to give hayrides at a farmers’ market during peak season suffered a serious injury while working. She sued her employers and their insurer to receive benefits through their Commercial General Liability Insurance policy.

Now wait a second, you might be saying. Isn't that a job for Workers' Comp Insurance? Typically, yes. It's third parties – the people who don't work for your business – who usually collect on General Liability's coverage for bodily injuries. Employees have to use Workers' Comp as recourse for their injuries.

However, the hayride operator contended that the General Liability policy only excluded bodily injury coverage for…

Because the policy didn't define "employee," and "temporary worker" was defined as someone who is furnished to the employer through a third party, she claimed none of the exclusions in the policy addressed her. No temp agency placed her in that particular job, and she claimed "temporary seasonal worker" would be the only term to properly encompass her work for the farmers' market. Therefore, she argued, the General Liability policy should cover her injury.

But the court disagreed. It opted to use the "commonly used meaning" of the undefined terms in the policy and held that under those common definitions, the hayride operator was excluded from the GL policy's coverage. In making that ruling, it also reaffirmed the standard application of General Liability Insurance: to protect the public at large – not people who work for a business – from bodily injuries.

To learn more about what General Liability Insurance can and can't do, read the post, "Why Your General Liability Insurance Doesn't Cover Data Breaches."

What's the Final Word on This Worker Classification Case?

The good news about this case: the farmers' market dodged a General Liability claim. As you may know, the fewer claims you make on your small business insurance policies, the lower your rates may be. (For more on that, check out our insurance savings tips blog series.)

But the case is still a reminder about how important worker classification is for small businesses. Just because the worker was treated as an employee for the purposes of the General Liability policy doesn't necessarily mean she's entitled to Workers' Comp benefits. Then again, if the hayride worker sued the farmers' market to claim she is an employee and is entitled to Workers' Comp benefits, the case could have turned out differently.

This all just goes to show you that it's important to understand…

That second point is especially true when you're not sure which employees your Workers' Comp should cover. Don't be shy about asking your legal advisor questions – it's your business that could pay the price if there's an oversight.

To learn more about worker misclassification, read the post, "NJ Ruling on Independent Contractors Maintains Tough Standards."


Contractors | Freelancers | General Liability Insurance | Lawyers | Small Business Risk Management | Tips for All Small Businesses | Workers' Compensation Insurance

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