Tag: Third Party Claims

First Party vs. Third Party Liability

The difference between first party and third party liability is essential to protecting a business properly. These differences are one of many aspects many business owners neglect far too frequently. Many business owners see insurance as a fixed cost. Others see it as some sort of tax. Considering some of the coverages are required by law in most states it is easy to understand why some business owners look at commercial insurance in this way. They are also part of your overall plan to protect the long term viability of your business. At the very least these policies should be. Protecting your business from both first party and third party liability is essential to properly protecting your business and here is an in-depth description of both types of coverage and why your business needs both.

First Party vs. Third Party Liability

The most basic example of the contrast between first and third party liability is in the two types of coverage most businesses purchase.  These policies are Commercial Auto, Commercial Property, General Liability, and Workers Compensation.  General Liability and Workers Compensation are common for all businesses because they are required by law for most businesses in most states.  Commercial Auto and Property Coverage are common because many businesses own property and vehicles.

Commercial property, commercial auto, and workers compensation are examples of first party coverage because they cover damages to you and your business (ie damage to your vehicle, property, or employees).  Another good example of first party coverage is a coverage like inland marine insurance.  This coverage protects damage to your specialized equipment like a lawn mower or an expensive camera for a photographer.

General liability is an example of third party coverage because it protects your business from the liability your business faces to other people and organizations. In this case the liability would be to anyone damaged by the actions of your business.  Third parties can include customers, vendor partners or anyone damaged by the actions of your business.

Find the answers to your questions about third party liability at myinsurancequestion.com

Workers’ Compensation and General Liability are required by law for most businesses in most states because they deal with the liability a business faces to both third parties and injured employees. If businesses chose not to secure these coverages and accidents occur, the only course of action for the victim would be to take the liable business to court. Because of these requirements they are frequently referred to as the ‘Exclusive Remedy’.

Other policies like those that cover a Data Breach are typically sold in tandem. Data Breach insurance is usually paired in combo as Cyber Security and Cyber Liability.  Cyber Security,  also commonly known as Privacy Notification and Crisis Management Expense Coverage,  protects damage to you and your business that result from a data breach. These costs are commonly referred to as the ‘immediate response costs’.  They could include, notifying all customers damaged by the breach, hiring a forensic expert to find the source of the breach, providing credit monitoring for those victims for up to one year (required by law in most states) and hiring a public relations firm to restore your businesses tainted image.  Cyber Liability covers your liability to third parties. These third parties can include customers, vendors or anyone else damaged by your business as a result of the data breach.

 

Workers’ Compensation Insurance Limits

Workers’ Compensation Insurance comes in two parts, coverage A and coverage B.  Coverage B is technically called Employers’ Liability Insurance, but the 2 types of insurance are often generically referred to as workers comp insurance in common usage.  With respect to employees injured on the job, coverage A (Work Comp) provides unlimited coverage of all medical expenses, a set percentage of lost wages (which varies by state), a lump sum for disabling injuries as well as a disfigurement and death benefit.  Business owners often confuse the coverage that part B limits. This effects workers comp benefits, but workers comp benefits are established by the individual state’s statutes. They generally cover all medical expenses when they are implicated.  The limits on a policy only relate to employers’ liability claims.

Thus, it is important to know when employers’ liability limits could come into play.  As written about in a previous blog entry, the most common types of employers’ liability claims are as follows:

(1) Third party claims: these claims are generally brought about by an injured employee against a manufacturer of the object causing the employee’s injury. The manufacturer then brings a claim against the employer for contributory negligence.

(2) Dual capacity claims:  This is similar to the above, but it comes up when the employer is also a manufacturer.  If an employee is injured by a defective product manufactured by his or her employer, he or she might bring a product liability claim against the employer in addition to claiming workers’ compensation benefits.

(3) Loss of consortium or other services to family members: loss of consortium and other claims such as modifications to homes or lost parental services resulting from a workplace injury can be covered.

(4) Consequential bodily injury: claims by the spouse or other family members of an injured employee arising from the injury such as a heart attack due to the stress of the news of the employee injury.

(5) Intentional acts/torts by the employer: claims covered in some jurisdictions such as knowingly allowing employees to work in unsafe workplace conditions.

Employers’ liability claims are rare.  However, they can occur and are often costly when they occur.  Employers’ liability coverage can cover damages/judgments, settlements, legal defense fees and other court costs.  Increased employers’ liability limits generally only increase the cost of the workers’ compensation insurance policy by around 1%.  Statutory minimum limits are usually (in all but a couple states) $100,000 bodily injury by accident (each accident), $500,000 bodily injury by disease (policy limit), and $100,000 bodily injury by disease (per each employee).  These limits can also be increased to $500,000/$500,000/$500,000 or $1,000,000/$1,000,000/$1,000,000 in almost all cases as well as $2,000,000/$2,000,000/$2,000,000 is sometimes available.

Now that we have created a better understanding of why increased limits could come into play, what are the most common reasons for a business owner to need increased employers’ liability limits?  The most common reason to get increased limits is probably that they are required by a contract important to a business owner.  This is a common request, and it is the most common reason our agency sees for increased limits.  However, there are several other good reasons to use higher than statutory minimum limits. To include a workers’ comp and employers’ liability policy under most umbrella policies, the limits generally need to be at least $500,000/$500,000/$500,000 and sometimes as high $1,000,000/$1,000,000/$1,000,000 limits.  Another good reason to have increased limits is for businesses which are in industries that are more likely to have an employers’ liability claim arise.  Such industries are generally higher risk industries which are more likely to experience devastating claims or manufacturing industries.  Devastating claims are more likely to lead to loss of consortium or other services by family members type claims.  Additionally, manufacturers are most likely to risk claims from disease exposures or dual capacity products liability type claims from employees.  This should provide an understanding of when it is worthwhile to consider purchasing a slightly more expensive workers comp policy.

Employer’s Liability Coverage Explained

Most business owners are familiar with workers’ compensation insurance. However, many do not know it almost always comes in two parts. There is workers’ compensation coverage and employer’s liability coverage. Workers’ compensation coverage has unlimited benefits for covered claims where as employer’s liability insurance has limits to its benefits. Employer’s liability insurance protects employers from claims caused by workplace conditions or practices which are not covered by workers’ compensation coverage.

Employer’s liability claims are very rare. However, they can occur and are often costly when they occur. Employer’s liability coverage can cover damages, judgments, settlements, legal defense fees, and other court costs. Increased employer’s liability limits generally only increase the cost of the workers’ compensation insurance policy by around 1%. Employers liability coverage is part of every work comp policy. You may be able to increase or decrease the amount of coverage (and the cost) based on your needs and risk exposure. This is a good reason to partner with an experienced independent insurance agent because they will be able to advise on how much coverage your business actually needs.

The most common types of employer’s liability limits are as follows:

  • Third Party Claims
  • Dual Capacity Claims
  • Loss of Consortium
  • Consequential bodily injury
  • Intentional acts/torts by the employer

(1) Third party claims: these are generally claims brought by an injured employee against a manufacturer of the object causing the employee’s injury. The manufacturer then brings a claim against the employer for contributory negligence.

(2) Dual capacity claims: Dual Capacity Claims are similar to Third Party Claims, but it comes up when the employer is also a manufacturer. If an employee is injured by a defective product manufactured by their employer, they might bring a product liability claim against the employer in addition to claiming workers’ compensation benefits.

(3) Loss of consortium or other services to family members: loss of consortium and other claims such as modifications to homes or lost parental services resulting from a workplace injury can be covered.

(4) Consequential bodily injury: claims by a spouse or other family member of an injured employee arising from the injury such as a heart attack due to the stress of the news of the employee injury. It is common for these types of claims to include alleged mental injuries. Legislative action in many states has narrowed the applicability of this type of lawsuit so it is important to know the laws within the state or states that your business operates in.

(5) Intentional acts/torts by the employer: claims covered in some jurisdictions such as knowingly allowing employees to work in unsafe workplace conditions.

Employers Liability Insurance Coverage Explained