Three Tips for Leased Employees 

So many businesses lease employees that it’s hardly given a second thought. Yet I cannot think of one single insurance policy that doesn’t include the word “Employee” in there somewhere – even (and especially) the ones you may not think about, like Cyber. This is relevant because, typically, when a carrier defines a term it’s to limit coverage in some capacity.

Because of this, it’s very important to understand your clients’ employee situations. Are there “standard” employees, are there independent contractors, is there seasonal or temporary help, are there volunteers, etc. etc. All of this plays into the various insurance policies and sometimes in completely different ways. Here are three tips to handle leased employees but these should be thought of as the start of your investigation, not the end of it.

1:   Always, always, always check the definition of “Employee” because it’s usually used to exclude something. 

This may seem like common sense but it bears mentioning. Policies, especially non-standard ones like Professional Liability, define “employee” very differently. For example, a Professional Liability policy might not include “leased employees” as employees since such individuals are expected to have their own coverage (perhaps from the leasing firm). 

Or, even when certain classes of individuals (like “leased employees”) are granted coverage, very strict limits can apply.  For example, sometimes the coverage your policy offers is limited to whatever that leased individual has elsewhere – so your $2M limit could only $500K if that’s what the leased employee brings for themselves. It’s also common to restrict coverage only for your vicarious liability for that leased individual and not their individual/direct liability.

Another extreme example of where the definition matters is in Crime policies. Insuring Agreement I (“Employee Theft”) is almost always the broadest coverage available, covering basically any dishonest act by an employee not otherwise excluded. Many crime policies are written with only this insuring clause and this is usually the Crime coverage you see added into Package policies. If a client operates on a permanent-contractor basis, where a good portion of staff are all independent contractors, they need a fitting definition of “employee” because otherwise that entire insuring agreement is useless.

To digress a bit: on Crime policies this can cut both ways. While “Employee Theft” is usually very generous coverage there are sometimes qualifications. For example, many policies require that an employee be identifiable for a theft to be covered under Insuring Agreement I. Thus there can exist a situation where technically not having someone considered an employee could be beneficial, assuming you’ve got coverage for the theft under another Insuring Agreement. But this is really a quirk only and definitely not a mark in the favor of exempting people from the definition of “Employees”. 

Sometimes Employee is undefined in a policy. This is typically a good thing since undefined terms are construed in the insured’s favor. However, I’ll take a broad, inclusive definition of employee (e.g. one that simply states what “Employee” includes, like “Employee includes a leased worker, temporary worker, and contract worker”) over an undefined definition any day. This is only a personal preference, but I am much happier when I can point to policy language itself to show that a “leased employee” is an “employee” rather than relying upon assumed interpretive benefit. 

2:   Make sure your definitions/coverage are consistent and complimentary. 

Just as important as knowing who is an employee is making sure that flows across your entire insurance program. For example, does your Umbrella define employee in the same manner?

This question becomes crucial if you’ve amended the underlying at all, such as to specifically include/exclude particular individuals as employees or if you’ve amended the underlying to include/exclude injury to these employees. A cautionary tale comes from the Business Auto side: Employees as Insureds. 

Employees as Insureds allows you to have a BAP cover an employee-driver directly in situations where (e.g.) they use their personal auto in the business. You do this by adding an endorsement specifically including “Employees” as insureds. This is a great deal for individuals such as executives who both constantly use their vehicles for business and have significant assets to protect. 

The problem arises if you don’t also pay attention to your Excess/Umbrella. All Umbrellas, yes even “Follow Forms” have their own terms and conditions.  Often these mirror unendorsed standard wording.  For example, take a look at ISO’s wording (pg. 10 of 17): it specifically excludes employees driving their own auto, just like an unendorsed BAP (emphasis added): 

[Who is an Insured is…] 

  1. Anyone else while using with your permission a “covered auto” you own, hire or borrow is also an insured except:


(2) Your “employee” if the “covered auto” is owned by that “employee” or a member of his or her household.   

Now some comprehensive “additional insured” type wording might do the trick, but again look at ISO:   

  1. Any additional insured under any policy of “underlying insurance” will automatically be an insured under this insurance.

If coverage provided to the additional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured is the amount of insurance required by the contract, less any amounts payable by an “underlying insurance”. 

Additional Insureds are usually just that – those persons or entities listed, specifically, as an “Additional Insured”, not those parties who fall under the “Who Is an Insured” section. Remember, we’re adding Employees as Insureds, not as Additional Insureds. Insureds get primary coverage; AIs don’t. They are separate and distinct entities for good reason. I don’t think ISO’s language cuts it when we add Employees as Insureds to an underlying Auto policy. 

The argument can be made that this wording is vague, and to be construed in the insured’s favor and that additional insured here (undefined) means any party for whom you’ve added any sort of coverage for on the underlying. 

While I don’t buy that argument I’d certainly make it if it were my client’s assets on the line. But this goes back to my point about preferring a definition in black-and-white rather than relying on interpretive benefit. I’m not sure if there’s case law on the specific matter of what constitutes an Additional Insured in ISO’s umbrella, and maybe it is meant to include situations like this, but I don’t want to find out the hard way. Further, most Umbrella policies you see will NOT be ISO-standard; one little word change and the whole situation is different. 

Long story short on point 2 – each policy will define “employee” differently and you need to make sure they play nice together.

  1. Having only leased employees does not mean you can skip Work Comp (really).

For reasons best put in its own article, having only leased employees does not allow one to forego Workers Compensation coverage. For the curious, I’d suggest this IRMI article on the topic. The “too long; did not read” version is this you can be held civilly liable for injury to leased employees (n.b. you can be held liable under Work Comp statutes as well but we’re assuming the leasing company provided this). 

This means three things: (1) you can get sued for their injury, (2) the “Exclusive Remedy” of Work Comp doesn’t apply to you, and (3) your CGL won’t cover it due to the Employer’s Liability exclusion. 

There is an ad hoc solution in that ISO has the following endorsement: CG 04 24 – “Coverage for Injury to Leased Workers”. This amends the definition (Remember point #2! Check your excess!) of “employee” on the CGL to not include leased workers for the purposes of the Employer’s Liability exclusion. Since leased worker is no longer an employee, the employer’s liability exclusion will not apply to leased workers. Thus, you get Employer’s Liability coverage, under the CGL, for injury to leased workers. 

Even with the bargaining power to secure this, it is a stop-gap for a very specific situation only. The only other option, as silly as it sounds, is for your client who does not have “employees” to buy a Workers’ Compensation policy. This might be equally hard to accomplish, and may mean a minimum premium state “Pool” policy, but is probably the better option. 

With a standalone Comp policy you get Work Comp coverage in additional to Employer’s Liability.  Sure, if your leased employees are actually not “employees”, and if the leasing company has their own coverage, and if you’re named as an Alternate Employer, then you probably don’t need true Work Comp coverage. But “probably” is not “definitely”. 

Second – when you have a standalone Work Comp policy you can also schedule it to the excess and it will work like you think it will. Whereas if you’re amending underlying coverage you again run into the lack of congruity between your underlying and excess. It’s just the more elegant solution. 


These are by no means the only things to look out for when dealing with leased employees but I will say they are probably some of the most important. Even a minor situation can turn real ugly simply because someone is or is not considered an “employee”. Don’t rely on 1099s, don’t rely on the client – read the language and see how the policy interacts with employees. 

And “leased” employees aren’t the whole picture by any stretch. For further reading, this article (“The Law of ‘Leased Worker’ and ‘Temporary Worker’ Under a CGL Policy”) offers a good in-depth legal interpretation of “Leased” vs. “Temporary” in the CGL. 

Money & Securities as Business Personal Property

Many package policies contain throw-in coverage that can be of significant value. For example, Employee Dishonesty. While it really should be a standalone coverage, and while every business should have it, most probably rely only on the enhancement available in their BOP or Package. 

Sometimes these enhancements can be significant, offering $25,000, $50,000 or more of coverage. While likely not enough to compensate for any significant embezzlement, it’s a lot more than $0. However, since non-ISO policies are just as common, if not more so, than their “standard” counterpart, you still have to pay attention to the wording of this coverage. The $25,000 of “Employee Dishonesty” on your policy could be almost useless. 

This is because of the way some non-standard policies read. First, an excerpt from the “Standard” employee dishonesty optional coverage from ISO’s “Businessowners Coverage Form” BP 00 03 01 10: 

We will pay for direct loss of or damage to Business Personal Property and “money” and “securities” resulting from dishonest acts committed by any of your employees acting alone or in collusion with other persons (except you or your partner)… 

Notice how it specifies three types of property: (1) Business Personal Property, (2) Money, and (3) Securities. 

There are some carriers that lump money and securities into Business Personal Property. Meaning that when they define “Business Personal Property” in the front of their policy they specifically include (instead of exclude) money and securities. This can cause an unintended gap with an insured that you would not otherwise know about. 

The reason is simple: because some carriers define  “money” as BPP, they often don’t need specify money as specifically covered under Employee Dishonesty extensions. Rather, the policy simply states it covers employee theft of “Business Personal Property” or “covered property”. The problem thus arises if someone doesn’t have BPP on their policy – consider a landlord, a Homeowners Association, etc. With this wording, if you don’t have BPP coverage then you don’t have theft of money covered because money is considered BPP. 

I don’t even think this is a “gotcha!” moment. I believe that when a carrier includes things like money/securities inside of BPP they’re actually trying to enhance their coverage. With money as BPP you may even enjoy some of the various extensions and enhancements usually reserved for just contents-type property (E.g. off-premises coverage). However, be aware of this potential unintended consequence when it comes to Employee Dishonesty coverage. 

This is another reason why you can’t rely on summaries and declarations listings of coverage and just assume. If you see a policy that has a $50,000 extension for “Employee Dishonesty” it could end up behaving much differently than you think, even for something as “Standard” as a BOP. 

Arbiters and Conflicts of Interest

An interesting story at Professional Liability Matters regarding an arbitration settlement that was voided because the arbitrator, in this case as judge, did not disclose an affiliation he had with one of the parties.  You can read the article here.  The interesting part comes in the legal theory to determine conflict; from the California Court of Appeals (emphasis added): 

On appeal, the California Court of Appeals noted that the standard for disclosure is not whether the judge was actually biased, but whether a reasonable person “could entertain a doubt that he could be impartial.”  Because the judge included one of the firm’s partners as a reference on his resume, the court determined that this standard was met.  Accordingly, the Court held that the judge had erred in failing to make the disclosure and vacated the arbitration award. 

This touches on a topic that insurance coverage lawyers have been dealing with for years. Namely, that an insured can state that a particular lawyer or firm, in a case where a determination of coverage impacts that insured, has a potential conflict of interest simply because they are panel counsel of the insurance carrier and thus the carrier has sway over their economic likelihood. I.e., it’s theorized a particular law could have an incentive to perform in the insurance carrier’s favor rather than in the insured’s favor.

An example would be a situation where an insured is brought up on potential fraud charges. The theory goes – and mind this is simplified and subject to jurisdictional law – that a carrier’s panel counsel has incentive to steer the decision toward a finding of fraud rather than negligence so that the insurance carrier will not have to pay an award. This would then encourage the carrier to use that particular counsel in the future. c.f. San Diego Navy Federal Credit Union, et al. v. Cumis Insurance Society, Inc.

States handle this matter differently – some state that a conflict doesn’t really exist or, if it does, the professional ethics and requirements put upon lawyers is sufficient to preclude “steering” cases in this manner. While an insured can still hire their own counsel in cases they believe they have conflict, many locales state it’s at their own cost.  However, other jurisdictions do require the carrier to pay for an insured’s independently chosen counsel if there’s a significant conflict.

In jurisdictions where “independent counsel” is mandated (California being one) an interesting question arises when an insurance contract has an arbitration clause. I’ll be honest in saying that I’m not familiar with California policies, but if their arbitration clauses read like others I’ve seen then an insurance contract can require insureds to submit to binding arbitration in matters of dispute. These clauses often specifically define the firm to be used. 

If such is in your contract, it seems like a potential “steering” problem, similar to that exists with lawyers, is created. After all if a state assumes that legal counsel will be influenced by volume of business, why wouldn’t an arbitration firm? I’ll admit it’s probably a harder argument to make, but certain jurisdictions consider a legal counsel conflict to be per se, so if the conflict is automatically presumed, it’s not that big of a stretch to apply it to other scenarios. 

And remember the article above – in the situation of this particular arbiter, all that was needed was for a “reasonable person” to “entertain doubt” of their impartiality. So while perhaps a difficult argument, the obstacles are still pretty low. And it would only take one court case to, essentially, invalidate any arbitration agreement in a particular jurisdiction when the insurance carrier was solely responsible for appointing the arbiter.

Insurance Agents Potentially Responsible to Non-Clients

This article from Professional Liability Matters summarizes a recent court decision over an action brought by the Cleveland Indians baseball team against an insurance broker for what was essentially failure to provide adequate professional services. The funny part is, this broker was not a person placing coverage for the Cleveland Indians but rather was a broker who had merely added the Cleveland Indians as an Additional Insured to their own client’s policy. 

Long story short is that the Cleveland Indians hired National Pastime Sports, LLC, an entertainment and games provider, to operate festivities before a game; these included an inflatable slide. National Pastime used an independent broker to secure General Liability coverage which included the Cleveland Indians as an “Additional Insured”. The broker did not secure inflatable coverage even though they were specifically told of the use of such beforehand. 

Unfortunately, the inflatable slide collapsed and killed and attendee. The Cleveland Indians sought coverage under National Pastime’s policy as a Additional Insured but, as mentioned, there was no inflatable coverage so they were unable to collect. The Cleveland Indians brought suit against the broker which was upheld upon appeal. The court concluded that simply by virtue of being an Additional Insured on National Pastime’s policy, National Pastime’s broker owed them a certain level of care. 

In short, this means that insurance professionals could owe a duty not only to their clients but (theoretically) any other named party on their client’s policies including Additional Insureds, Mortgagees, etc. 

Without a Lexis Nexis account I can’t comment as to whether the duty owed to these additional interests is the same level of duty owed to direct clients. And, further, this particular case does seem to stand alone. However, we’ve all seen how liability and subsequent litigation always starts with a crack before the dam breaks. 

Following along this path leads to further questions, such as what happens when you have an adversarial relationship between the client and an Additional Interest. For example, it’s (usually) in your client’s best interest to limit the scope of Additional Insured status, say by using a newer “Designated Person or Organization” endorsement which tends to be more restrictive**. Are you obligated to notify the Additional Insured that they could get more comprehensive Additional Insured coverage even though it would (1) cost your client more and (2) mean any losses impact your client’s history? While perhaps it’s a stretch to make that argument, it’s still plausible. 

Note that Law 360 also states this case was denied for appeal.


* Mortgagee and Loss Payable status usually provide certain benefits not otherwise found in Loss Payee-type clauses. These include promise of notification should the policy cancel or non-renew, as well as the ability to retain coverage when it’s otherwise voided by the Named Insured, such as if the insured commits arson. 

** Older endorsements (e.g. CG 20 10 11 85) don’t limit coverage to just ongoing operations, meaning the endorsement provides Products/Completed-Ops coverage. There are various other restrictions as well.