Protect against those dreaded action over insurance claims.

When it comes to double-dipping, most people think of ice cream. However, there's another, much less pleasant kind that relates to an employee injured on the job who collects workers' compensation and then sues a third party for contributing to the employee's injury. This is called an "action over" claim. They can be complicated and very costly.

But to whom? Depending on the details, these claims can return to haunt the employer, not the third-party.

Who pays is ultimately decided by two critical factors:

• What is in the contract between the third-party and the employer?
• What does it say in the employer's commercial general liability (CGL) policy?

The contract

The contract is important because the employer may have given up certain rights to the third party. For example, she may have indemnified the third party against any liability arising from the actions of her employees. Or, perhaps the third-party has been listed as an Additional Insured on her insurance policy.

The policy

Standard CGL policies explicitly exclude coverage for claims involving work-related injuries, but there is a crucial exception to this exclusion - if you have a contract with the third-party the Action Over exclusion does not apply. The rub here is that "standard" CGL policies are being amended by some insurance carriers to remove the protection from liability in action over claims, so you can't count on this as a given.

Best practices

The good news is there are specific steps you can take to minimize the likelihood that you will end up on the wrong side of the fence. The first, and most obvious, is to read your CGL policy:

• Does it have an endorsement called "Action Over Exclusion"? If you see this you know without a doubt you do not have coverage.
• Carefully read the section called "Bodily Injury and Property Damage." It may contain language excluding Action Over coverage.
• Does the policy contain an absolute employer's liability exclusion? If it does, you have no coverage related to employee injuries regardless of the circumstances, including action over claims.

The contract with the third-party is your second line of defense. Indemnification provisions in contracts are typically enforceable, so:

• First and foremost, have a written contract.
• Limit your indemnification to liability arising from only your actions.
• Avoid agreeing to indemnify the third-party against uninsured exposures or for the work of sub-contractors.
• Define the monetary limit of your indemnification.

Action Over is a difficult and poorly understood issue that is increasingly being shaped by court rulings and state labor laws. All parties to the topic are being impacted – workers, employers, third-parties and insurance carriers, and strategies to each protect their own interests are evolving. It goes without saying that the advice of both legal and insurance professionals is called for to minimize exposure to a potentially catastrophic outcome resulting from action over claims.

Please note that this information is not intended to serve as legal advice and is only general information not directed to any particular set of facts.