Why is Third Party Action Over Liability Important?
Indemnity Agreements and Third Party Action Over
In the construction industry, it is common for contracts to include something called an indemnity clause or agreement. Essentially, it is an agreement between a property owner and a contractor or a general contractor and sub-contractor which states that in the event one of the sub-contractor’s employees sues the property owner or General Contractor, the sub-contractor will ultimately be responsible for the legal fees and damages through something called a third party action over insurance claim.
Are You Sure You’re Covered?
The situation illustrated above is more common than you may realize. So you have to ask yourself: Are you really covered if one of your employees is injured while working for you? Sure, your workers compensation insurance covers employee injuries suffered while at your place of business or while they are off-site working for you. But what happens when your employee feels they deserve more compensation than workers comp provides?
Workers compensation is not the only coverage to consider when an employee is injured. Things can quickly get complicated if your employee decides to sue a third party, typically the owner of the property where the injury occurred. In the end, you can be on the hook for significant damages not covered by workers compensation or your commercial general liability (CGL) policy.
Commercial General Liability (CGL) Exclusions
In the above example, you may still be covered by your own CGL policy. But there could be language in your CGL that excludes third party action over claims and you may be exposed. Insurers have been known to exclude coverage for third party over claims in places such as New York where the labor laws work in favor of the employees and against the property owners.
This is why it is crucial to understand all the language in your CGL policy to ensure there are no gaps in coverage that will leave you liable.