What is “Coverage B” ?

Every workers’ compensation policy written to comply with the requirement that employers of 4 or more employees have a workers’ compensation coverage, contains at least two parts. Part I is workers’ compensation coverage to provide the benefits mandated by ch. 440.  Part II is called “employer liability” or “Coverage B” and affords coverage not provided in an employers general liability policy ie: for bodily injury or disease caused by accident to an employee. Employees are exempt from coverage under an employers general liability policy.

Coverage B has been so rarely used that the cost of the coverage is virtually free. An employer that wishes to increase the limits of liability coverage from the standard $100,000.00 per person to 1 million will pay an additional 1.40% to do so. Coverage under Part I is unlimited.  Coverage B  was so rarely used that a group of employers in Idaho filed a class action to enjoin their state fund from writing the coverage and charging them the minimal premium for it. The suit was dismissed. The Supreme Court of Idaho, in affirming the dismissal explained why coverage B is a workers’ compensation type coverage and in what situations it may be used. Selkirk Seed Co. v. State Insurance Fund, 135 Idaho 434, 18 P.3d 956 (Idaho 2000). The opinion is clear, however, that the insurance fund has never been called upon to defend or pay on a Coverage B claim. The court was hard pressed to even come up with a hypothetical scenario where the coverage would apply. Yet, the court said the coverage did provide a measure of protection against the rare possibility that an employee could avoid the exclusive remedy.

In Florida there have been a number of attempts to tap into Coverage B, most of them unsuccessful. For example, Coverage B does not cover claims of sexual harassment because it excludes intentional torts TIG Insurance Co. v. Sweet Factory Inc., 748 So.2d 337 (Fla. 5 DCA 2000). Coverage B does not cover ‘spoliation of evidence’ because that is not a claim for bodily injury arising out of an accident Humana Workers Compensation Services v. Home Emergency Services, 842 So.2d 778 (Fla 2003).  It likely does not cover  “Turner” situations for the same intentional tort exclusion applied to sexual harassment Travelers v. PCR, 326 F.3d 1190 (11 Cir. 2003), certifying 2 questions to the Florida Supreme Court: 1. Does Florida insurance law require a reading of specific intent into an insurance clause excepting from liability coverage “bodily injury intentionally caused or aggravated” by the insured? And; 2. Is PCR in this case entitled to liability coverage based upon the language of the policy agreement (Coverage B), read in the light of Florida’s law of interpreting insurance policies?

Although not mentioned in the opinion, one recent Florida decision of the Fifth DCA illuminated a very real way that an employee can have the advantage of a different forum for his accidental injury claim and the benefit of Coverage B to pay the judgment. Once the carrier (or the employer) deny that compensation is payable for an on the job injury, the employee has the option of claiming compensation under the act or heading over to the circuit court for his day before a jury of his peers Byerley v. Citrus Publishing, 725 So. 2d 1230 (Fla. 5 DCA 1999) rev. denied). See also Francoeur v. Pipers Inc, 560 So. 2d 244 (Fla. 3 DCA 1990) ( Employer immunity breached where coverage was in force, medical and indemnity paid voluntarily, but employer “did not inform the employee that he was fully covered by workers’ compensation benefits" citing Quality Shell Homes and Supply Co. V. Roley. 186 So. 2d 837 (Fla. 1 DCA 1966) (Estoppel applied when employer verbally misled claimant).

If the compensation carrier refuses to cover and defend the tort action, the employer is free to do so and free to settle with the claimant/plaintiff. In those cases the plaintiff may take an assignment of the employers right to obtain indemnification from the insurer. In the action against the carrier to collect the settlement or judgement, the carrier loses any real defense to the action other than the settlement was excessive or that there was fraud or collusion in the process.Wright v. Hartford Underwriters Ins. Co., 823 So. 2d 241 (Fla 4DCA 2002).

The following quote is taken from Martinez v. Scanlan, the case which tested the constitutionality of the 1990 revisions to Ch. 440. Read it carefully. Then note that ALL compensation for loss of wage earning capacity for partial disability has been eliminated from amendments to Ch. 440 which become effective on October 1, 2003 (SB50a):

“Although Ch. 90-201 undoubtedly reduces benefits to eligible workers, the workers’ compensation law remains a reasonable alternative to tort litigation. It continues to provide inured workers with full medical care and wage-loss payments for total or partial disability regardless of fault and without the delay and uncertainty of tort litigation. Furthermore, while there are situations where an employee would be eligible for benefits under the pre-1990 workers’ compensation law and now, as a result of Ch. 90-201, is no longer eligible, that employee is not without a remedy. There still may remain the viable alternative of tort litigation in these instances.” Martinez v. Scanlan, 582 So. 2d 1167, 1171 (Fla. 1991).

 In Oregon, the state from which Florida copied the “Major Contributing Cause” defense to workers’ compensation claims, their Supreme Court has already held that such a defense, once raised,  makes the employer liable to suit in tort Smothers v. Gresham Transfer, inc. 332 Or. 83, 23 P.3d 333 (Or 2001). If a statute is copied from another jurisdiction, the decisions of the supreme court of the jurisdiction interpreting that statute are usually very persuasive to the copying jurisdiction Concerned Class Members v. Sailfish Point, Inc, 704 So. 2d 200 (Fla. 4 DCA 1998).

The employer has the ability to bind the carrier to the defense of a Coverage B claim just as the carrier has the ability to expose the employer to excess liability. It has been held that the mere oral statement by an employer to an employee that the employer does not have full workers’ compensation coverage, is enough to allow the injured employee to avoid the exclusive remedy and sue in tort Francoeur, supra,  and the carriers denial of benefits because the injury did not arise out of the employment (even if the employer disagrees) is enough to expose the employer to an excess judgment in circuit court , Byerley, supra.

It is unfortunate for employers and injured workers that the limits of liability for coverage B are fixed, and start at $100,000.00 per person. At that low level, the carrier’s will be hard pressed by bad faith considerations not to throw in the policy at the earliest stage, lest they be on the hook for the excess, if any. For a discussion of the law of insurance bad faith see Farinas v. Florida Farm Bureau, 2003 WL 1916837 (Fla. 4DCA 2003) (question certified).

One can assume that with all the new ways available to the E/C to deny a claim and all the benefits that were previously available that are no longer available to the injured worker, that Coverage B is going to be the next battleground. Ultimately the statistics may very well show that the amendments contained in SB50a, did reduce workers’ compensation costs, but the attendant increases in liability costs may be staggering. Just last September a Dade county jury awarded a housekeeping supervisor that herniated 2 discs by lifting boxes at work 1.3 million dollars based upon the employers negligent failure to train her how to lift properly. The jury’s verdict was reduced by the trial judge and an appeal is pending in the 3 DCA.

Few remember the law school class on master servant responsibility and liability. That relationship requires one of the highest standards of care in the law. The master is liable for failure to provide a safe workplace, failure to properly supervise, failure to properly equip, failure to properly train, failure to provide the number of employees needed to do the job safely. A violation of a safety rule, regulation or law will expose the employer to punitive damages, for which there is no coverage.

If an injured worker accepts compensation benefits or even files a petition to get benefits, unless that petition is fully litigated to a conclusion, the employee has not elected workers’ compensation as his sole remedy. An employee who discovers that the employer has lost the immunity afforded by Ch. 440 (11) may file suit and dismiss his petitions. If the suit is ultimately dismissed based upon workers’ compensation being the exclusive remedy, the employee has two years to refile his petition from the date his negligence action was dismissed, Ch. 440.19(6)(2003) Vause v. Bay Medical, 687 So. 2d 258 (Fla 1DCA 1997).

There is no need to ride the workers’ compensation bomb to self destruction. Stop worrying and learn to love Coverage B.

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