OWNER OPERATOR WORK INJURY PROGRAMS
By Lisa R. Paul, CPCU
Paul Hanson Partners Specialty Insurance Solutions
A transportation company’s success is greatly dependent on its’ ability to attract and retain quality drivers. In today’s competitive environment, a major draw against a trucking company’s capital is the cost of the recruitment and retention of the company’s driving fleet. The company must first attract potential quality drivers. Then the company must convince them of the merits of becoming contracted, indoctrinate them regarding the company’s culture and benefits as compared to others and bring them on board. Then the company must continuously train, support and provide optimum working conditions under which the drivers can earn a quality living for themselves and their dependent families.
If independent owner operators are contracted vs. employee drivers, the arms distance relationship must stay in tact while the motor carrier protects itself from liability that may arise from uninsured and underinsured independent owner operators.
For the individual independent owner operator, insurance including that for work injury for themselves and their part time, casual or full time employees is a substantial portion of their expense.
There are three distinct methods for independent owner operators to procure workers’ compensation insurance and several have pitfalls that the independent owner operator and their motor carrier must beware of:
Option #1 — Independent Operators each procure individual policies and issue a certificate of insurance to the motor carrier. This method is often used when the motor carrier is most concerned with maintaining the arms distance relationship with IRS. However, this method holds the greatest degree of risk for the motor carrier. Most independent owner operators are sole proprietors or partnerships with their spouse. Therefore, most insurance companies and assigned risk pools who write the workers’ compensation policy place a sole proprietor or partnership exclusion on the policy and provide coverage only for the owner operator. Therefore, if there is an injury of the owner operator, the claim will come back to the motor carrier’s workers’ compensation provider. In addition, since other employers cannot be an additional insured on a workers’ compensation policy, if the policy is canceled for non payment, the motor carrier is often not notified.
Option #2 — Motor carrier purchases a workers’ compensation policy in the name of the motor carrier and does a charge back to the independent owner operator. By definition, a workers’ compensation policy is issued to an employer for their employees. This method clouds the issue of the independent owner operator status with the IRS because the policy is issued to the motor carrier who is not truly the employer. In many states multiple employers (which is what independent owner operators are) cannot be combined on one policy for coverage. In addition, if your independent owner operators reside in a state that is different than the motor carrier business and state of issuance of the workers’ compensation policy, then they have not met the requirement of their resident state which requires each employer to purchase a workers’ compensation policy.
Option #3 — Each owner operator purchases occupational accident for their coverage and a separate workers’ compensation policy for their employees. Since most independent owner operators are sole proprietors or partners, they can opt out of workers’ compensation legally. Occupational accident is a health and disability coverage form that is designed for owners of small businesses. Benefits vary by policy and insurer. The applicant must choose a medical and weekly indemnity benefit. Medical coverage is capped and usually subject to a two year incurral period. If your independent owner operators are evidencing an occupational accident coverage for work injury, be sure your contract addresses the minimum medical limit that you will accept. In today’s medical expense environment, a minimum of $1,000,000 medical should be established. However, beware – occupational accident has distinct policy exclusions that would apply. Most often motor carriers get hit with large owner operator claims once their occupational accident coverage runs out.
Most occupational accident programs have a corresponding individually issued workers’ compensation policy issued to the independent owner operator for their casual hire, part time or full time employees. These policies must be issued in the state of residence of the independent owner operator and not to the state of an association that your owner operator may belong to access work injury coverage.
Also available from many insurers is “contingent compensation” or “contingent casualty” coverage. This is a separate policy issued to the motor carrier in the event a covered owner operator files a claim against the motor carrier alleging they are an employee. This policy would then provide defense coverage for the claim and, if the case is lost and the covered owner operator is deemed to be an employee, the policy will pay a portion or full workers’ compensation benefits depending on the policy form that is purchased.
Be sure that your owner operators occupational accident workers’ compensation coverage form is fully insured by an admitted US insurer. There are several offshore captive programs that could have joint and several liability for the independent owner operator and the motor carrier.
Our firm is pleased to offer true workers’ compensation for the owner operator and their employees with coverage in all states and comparable costs to occupational accident coverage.
A review of your contractors work injury programs on an annual basis will assure that coverage is the best the market can offer at a price that is competitive. Often times the “easiest” method is not the one that best protects your long term liability.
For more information on our insurance programs for owner operators, please call Paul Hanson Partners Specialty Insurance Solutions at (800) 852-1968.
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