In many liability policies, there is important language which excludes the claims of employees who may have been injured in connection with work performed for the insured. This is particularly true in commercial general liability policies which frequently exclude claims by employees which are more appropriately covered under worker's compensation insurance policies. While many policies are now incorporating exclusions for claims made by independent contractors in connection with their work, most policies only include the former, employee exclusion. These exclusion are especially important in an increasing number of claims brought by workers whom the insured has mischaracterized as "independent contractors" to avoid the expense of worker's compensation insurance.
Liability carriers are not bound by the classifications of their insureds. Indeed, carriers must carefully examine the functions and role of each worker to determine whether they qualify as "employees" and are, therefore, excluded from coverage. Although the Internal Revenue Service has recently modified the test for distinguishing between "independent contractors" and "employees" for tax purposes, the IRS' traditional twenty factor test still serves as an important outline for insurance adjusters and claims representatives in investigating the status of particular workers. Thus, in investigating the status of a worker, consider the following factors:
Is the worker required to comply with instructions concerning when, where and how to do the work?
Is training provided by the service recipient to enable worker to perform job in a particular manner?
Are the services provided integral to the business?
4. SERVICES RENDERED PERSONALLY
Must the worker personally render the services or can they be delegated to others?
5. HIRING, SUPERVISING, AND PAYING ASSISTANTS
Does the business hire, supervise or pay assistants to help the worker perform the services?
6. CONTINUING RELATIONSHIP
What is the longevity of the relationship between the worker and the service recipient?
7. SET HOURS OF WORK
Who sets the hours of work? Are there any requirements for when the work must be performed beyond mere deadlines?
8. FULL TIME REQUIRED?
Is the worker required to devote full-time to performing the services?
9. PLACE OF WORK
Does the worker perform a substantial part of the work on the employer's premises?
10. ORDER OF WORK
Who decides the order or sequence of the work to be performed?
11. REPORTING REQUIREMENTS
Are regular oral or written reports required to enable the service recipient to monitor the worker's progress?
12. PAYMENT SCHEDULE
What is the method of payment--hourly, weekly, commission, or by the project?
13. PAYMENT OF EXPENSES
Are business or travel expenses reimbursed?
14. PROVIDING TOOLS/SUPPLIES
Who furnishes the tools and materials needed to perform the work?
15. WORKER INVESTMENT
Does the worker have a significant investment in the equipment and facilities?
16. WORKER PROFIT/LOSS
Can the worker realize a profit or loss from his services?
17. EXCLUSIVITY OF RELATIONSHIP
Can the worker provide similar services to more than one business at the same time?
18. OFFERING SERVICES TO GENERAL PUBLIC
Does the worker make her services available to the general public?
19. RIGHT TO FIRE
Can the worker be fired from the job for reasons other than the failure to perform the work? Or, would such a dismissal breach the worker's contract with the service recipient?
20. RIGHT TO QUIT
Can the worker terminate the relationship at any time without liability for failing to complete the work? Or, would this give rise to a breach of contract claim?
While you need not perform a tax audit to classify a worker as an independent contractor or employee, you must consider and obtain the following information in investigating the status of a worker:
WORKER EMPLOYMENT HISTORY
- How Worker Gets Jobs?
- Advertise / Listed in Industry Directories?
- List Jobs in Past 5 Years
- More than on job on or around time of loss?
- did compensation continue between jobs? If so, who paid it?
- Responsible for finding next project?
TRAINING/PREPARATION FOR JOB
- Training for Job
- Skills Involved
- Skill Maintenance [who pays for training?]
FORMATION OF CURRENT JOB
- How did Worker Get Job at Issue in Our Case?
- Length of Relationship?
TERMS OF CURRENT JOB
Payment Terms? ===> How Paid? Hour / Day / Week / Job / Commission
NATURE OF THE WORK
- Type of Work?
- Skill of Worker?
- Provide Own Equipment?
- Hire Owns Assistants?
- who is supervising? the insured?
- time spent looking over shoulder of worker?
- tell you how to do your job?
ENDING THE RELATIONSHIP
- Free to Quit?
- Can Worker be Fired?
- W-2s / 1099s / tax returns / financial statements
- Reports from Workers
- Written Instructions
- Job Evaluations
- Compensation Records