June 19, 2018 | Ryan Kagarakis
Although “Action Over” sounds like the name of an exciting movie you might go see in theaters it is, in fact, a serious coverage issue all construction companies face. “Action Over”, or sometimes known as “Third-Party Over-Action” claims usually arise when a general contractor hires a subcontractor and an employee of the subcontractor gets injured. In an action over claim an injured employee, after collecting workers’ compensation benefits from their employer sues a third party for their negligence or contribution to their injury.
Here is how it could affect general contractors:
If a general contractor utilizes subcontractors it is commonly assumed that they are responsible for the safety of the entire job site since it is “their project”. If the subcontractor’s employee gets injured on the job site their sole remedy for indemnity and medical payments will be the employer's workers’ compensation policy. In California, workers’ compensation is the exclusive remedy if an employee is injured on the job; this means that the benefits from workers’ compensation for that injury is the only compensation that will be afforded by their employer. If the employee feels like it was the fault of the general contractor for not maintaining a safe work environment they have the option to sue them for their negligence that led to their injury. The injury to a third party is typically covered under a general liability policy, however, there are certain insurance companies that put Action Over Exclusions on their policy. Some insurance carriers specifically add an action over exclusion that modifies coverage so that an injury to a third party’s employee at the job site is excluded. If the injury to a subcontractor was in ANY way the fault of the general contractor and the liability policy has this exclusion there is NO COVERAGE.
What about subcontractors?
If you are a subcontractor working for a general contractor you could be in the line of fire for this type of claim as well. Numerous risk transfer methods are used to allocate and spread risk on a construction job site. A general contractor will usually have the subcontractor sign an indemnification (hold harmless) agreement where the subcontractor agrees to protect the general contractor if their actions result in a lawsuit. Let’s take the situation above: a subcontractor’s employee gets hurt, collects workers’ compensation, and sues the general contractor for job site negligence. If an indemnity agreement is in place the general contractor will pass along that lawsuit BACK to the subcontractor citing the indemnity agreement that is already in place. What this essentially means is that the subcontractor is paying TWICE for the same claim… once for the workers’ compensation injury and a second time for the negligence lawsuit that was originally meant for the general contractor.
The action over exclusion, however, does not exclusively impact the liability policies of general contractors. If you are a subcontractor using the services another subcontractor for part of your work this dangerous exclusion applies to you as well.
So what can be done?
First and foremost, consult with an insurance professional to make sure that your general liability policy DOES NOT have an Action Over Exclusion, a Third Party Over Exclusion, or any exclusion limiting injury to the employees of others.
Consult with your attorney to make sure that the contracts that you enter in to include indemnifying language that is favorable to your organization.
Property & Casualty Consultant
Brown & Brown Inc.
Mobile: 562.290.9051| Office: 916-625-4616