By: Kerri Quigley, CPCU, ARM, AU
Given the nature of your business, owners and risk managers of temporary staffing agencies must address a number of unique liability exposures that frequently are not covered by standard insurance policies. While an agency retains liability for the actions of its employees, those employees are primarily supervised at off-site locations by the agency’s clients. This arrangement can create gaps in insurance coverage that are not always evident without a thorough examination of the policy by an expert in temporary staffing insurance. Often, such gaps are not noticed until an uncovered claim forces the staffing agency to pay full damages out of its own pocket. The following scenarios illustrate this point by examining two plausible situations that may not be covered by a traditional policy.
Claim Scenario #1: A temporary employee is working at your client’s warehouse, moving boxes with a forklift. The employee loses control of the forklift, running into a wall and causing damage to both the forklift and the wall.
Will Your General Liability Policy Cover This Claim?
General Liability policies cover bodily injury and property damage claims that arise during the course of your day-to-day business. This means that the manner in which a policy classifies your business can affect whether coverage is provided. Frequently, temporary staffing agencies are misclassified as employment agencies, which provide permanent employees to other businesses. This can be a problem for temporary staffing agencies because they remain the employer of any workers they place, making them vicariously liable for the actions of those workers. An employment agency’s liability for a placement’s actions, by contrast, ends the moment it places the employee with a client. Consequently, your General Liability policy may not provide coverage for some claims if you are classified as an employment agency. This mistake could allow your carrier to interpret the placement of temporary employees as being outside the scope of your business as agreed upon under your policy—leaving you to pay for any damages they cause.
Even if your business is properly classified, a standard General Liability policy would only provide coverage for damage to the client's wall in the given example, but not to the forklift. This is because the standard policy has an exclusion for damage caused to property in your (or your employee’s) care, custody, or control. Thus any time one of your employees uses equipment owned by one of your clients, you assume liability for damage caused to that equipment, even though you are covered for any damage caused by the use of that equipment. Endorsements are available to remove this exclusion, or you can add a specific sub-limit that provides coverage, but your insurance carrier will only offer these additions if they are specifically requested.
Claim Scenario #2: A temporary employee is working for one of your clients, an electronics wholesaler. Your client discovers that this employee has been stealing electronic equipment.
Will Your Crime Policy Cover This Claim?
The Employee Theft insuring agreement under a Crime policy protects a business against theft by its own employees. While Crime policies vary to a degree from carrier to carrier, the Employee Theft insuring agreement typically provides coverage only for money, securities, or other property owned or held by your business. Given that temporary employees are working at client sites, the property primarily exposed to theft belongs to your clients. To protect yourself, your Crime policy needs to be specifically endorsed, either by scheduling a separate limit, or by broadening the definition of Employee Theft to include coverage for client property. Without such an endorsement, you would again find yourself paying for all damages resulting from the described scenario.
Beyond establishing whether coverage is provided for the theft of client property, it's also important to determine how a client is defined on your policy. In many cases, the definition of a client is worded such that coverage is only provided if you have a written agreement in place with your client. Thus if you don't have contracts in place with 100% of your clients, you need a policy that doesn't base coverage on the existence of a written contract.
Protecting Yourself
The scenarios above explore two common examples of claims that could cause trouble for temporary staffing agencies, as well as some possible solutions that can provide a measure of protection. Nevertheless, even if you’ve purchased the appropriate coverages, it can be difficult to predict whether your insurance carrier will pay out on a given claim. The often-ambiguous nature of insurance, particularly in the staffing industry, makes it crucial for your policy to be carefully scrutinized for coverage gaps by a specialist who is capable of advocating on your behalf during a complex claim. Given the extensive variance in available coverage, finding an insurance broker with the necessary industry expertise is the best way to ensure that the coverage you purchase is adequate to contend with your daily business exposures.
Tricom Funding and Assurance Agency recently co-hosted a webinar on these potential coverage gaps and many others for the staffing industry. To view that webinar in its entirety, visit http://goo.gl/MYneC.
y once in a while as I speak with staffing company owners, I’ll meet someone who doesn’t use any source of outside payroll funding assistance. 
