Quick Tip: Action-Over Exclusion

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An Action Over exclusion bars coverage for bodily injury to an employee, leased worker, temporary worker or volunteer worker of the Insured. We were recently advised of a large Action Over claim- Ashley shares more.

An action over exclusion bars coverage for bodily injury to an employee, leased worker, temporary worker or volunteer worker of the Insured. The contractor and building sign a Hold Harmless Agreement prior to the start of the job which transfers this risk back to the contractor’s policy. However, if the contractor’s policy contains an action over or injury to employee exclusion the insurance company cannot tender the claim to the Contractor’s insurance because of these exclusions on his policy. We were recently advised of a large Action Over claim.

The building hired a contractor to perform some maintenance. The entire job cost was $625. The manager obtained a work order, invoice, and certificate of insurance that named the building as Additional Insured. The manager did not have the contractor sign a risk transfer agreement, which is what would have triggered the Additional Insured wording- thus the certificate was useless. Many contractors policies will only provide additional insured status when required in a written contract. The employee of the contractor wound up slipping on his own ladder and fracturing his leg. The injury resulted in four surgeries, and the employee has been unable to return to work. He is an undocumented worker, hired off the books by the contractor- but the insured did not know this.

The claim is expected to exceed $1.5 million, thus exhausting the building’s General Liability limit and piercing their Umbrella Policy. The insurance carrier non-renewed the building’s insurance and the only insurance they were able to secure was five times the premium, with a much higher deductible and many exclusions. The cost of their package premium went from $50,000 to $250,000, and this claim will be on their loss run for five years.

This proves a great example of the importance of having a signed contract which includes a hold harmless agreement. Even if everything is signed and put into place properly to transfer the risk, if the contractor has an action over exclusion on their general liability policy there will not be any coverage for the building. It is extremely important to obtain a full copy of the contractor’s policy to be certain they do not have the exclusions which could negate coverage for the building. The strongest point now is not just transferring the risk properly, but also reviewing the Contractor’s complete policy by Corporate Counsel.

For more information, please contact us.