March 22, 1996
INSURANCE INFORMATION NOTICE NO. 96-2
SUBJECT: EXPOSURE TO LAWSUITS
Lawsuits can be filed against the State seeking recovery of workers compensation benefits when injured employees are directly employed by contractors of the State. This liability arises when the contractors have no insurance, and the State, therefore, is responsible for benefits. The problems usually arise when workers compensation insurance for the contractor is canceled or when the insurer (insurance company) becomes insolvent. When this occurs, the injured employee can file suit against the State as a statutory employer seeking recovery of workers compensation benefits. It is strongly recommended that all State contractors be required to show proof of workers compensation insurance before a contract begins. If the employee is involved in manual labor, the workers compensation statutes make the State the statutory employer and the State is responsible for benefits. It is also strongly recommended that periodic checks are done to verify coverage during the term of a contract. Proof of workers compensation insurance can be obtained with a certificate of insurance. "30 days notice of cancellation" should be indicated on the certificate to increase the chance of being notified in advance of cancellation of insurance. While periodically checking to make sure that insurance is in effect may be cumbersome, it is expensive not to do so. If a claim arises out of the above mentioned situation, the State agency could see an increase in their workers compensation premium.
The other areas wherein the State could be legally liable are general liability and automobile liability coverages. The contractor should provide these coverages. Again, a certificate of insurance should be obtained as proof of coverage and coverage should be checked periodically. This periodic checking should be conducted directly with the insurance agent/company and not with the contractor. "30 days notice of cancellation" should be indicated on the certificate to increase the chance of being notified in advance of cancellation of insurance.
Please be advised that the Office of Risk Management (ORM) provides recommendations or guidelines for insurance coverages in contracts. ORM does not set mandatory limits or coverages to be requested of contractors. The ultimate decision as to what limits and coverages are required in a contract is to be made by your agency. Therefore, the above information is provided as a recommendation and not as a requirement of the State of Louisiana.
If you have any questions concerning the above, please contact Bridgette Anderson at (504) 342-8416.