Protecting Motor Carriers Against an O/O Work Comp Claim (part 2 of 3 part series)

The first part of this three-part series addressed the hazards and risks of being a professional truck driver.  Part 2 covers the risks to motor carriers and how to choose appropriate coverage.

With trucking-related injuries on the rise, going without sufficient workplace injury coverage creates a significant gap in the event of Complex-Insurance-Coverageaan accident. While owner-operators may assume this liability falls on the shoulders of independent contractors (I/C), the reality is that many states are pushing legislation with stricter interpretation of the definitions of employee versus independent contractor. Motor carriers are finding themselves on the losing end of litigation that finds them liable for I/C injuries. Don’t find out too late you didn’t have the proper insurance coverage.

For the motor carrier the message is to avoid blurred lines between employee and independent contractor. Claims from employees clearly fall under worker compensation, but sometimes an I/C or family member could make a workers comp claim if there is no other recourse. Companies classifying workers as I/Cs instead of employees are being scrutinized more and more by state legislatures. If your company uses the services of an I/C, careful attention should be given to compliance with existing laws used to determine a worker’s status. You risk considerable tax fines, other penalties, and a serious gap in insurance coverage if I/Cs are later determined to actually fit an employee definition.

A workers comp claim can be made in any one of four states:
•         Home residence of driver
•         State where the accident took place
•         State where he was hired (terminal)
•         Home state of motor carrier

And, naturally, state laws vary. In some states, an independent contractor can file for employee status and win, thus causing a motor carrier to pay work comp benefits out of pocket. Many states are focusing in on the concept of employee versus I/C status. For instance, in 2014 New York State passed the New York State Commercial Goods Transportation Industry Fair Play Act, which creates a presumption of employment in the commercial goods transportation industry unless an employer can meet the ABC test. Moreover, the law contains an eleven part test to determine when a sole proprietor, partnership, firm, corporation, limited-liability company, association or other legal entity shall be considered a separate business entity from the commercial goods transportation contractor for whom the service is being provided. New York has completed 118 audits/investigations of employers in the commercial goods transportation industry since the law went into effect in April 2014.

In Massachusetts a recent ruling from the First Circuit Court of Appeals in Massachusetts Delivery Ass’n v. Coakley upheld tight interpretation of the Massachusetts ABC Test. This means for an individual to be considered an I/C, they must strictly adhere to the state’s three pronged ABC test.

Both Washington state legislatures introduced bills known as the Employee Classification Act that will take a stab at identifying, fining, and ending employee misclassification. In addition to many changes and additions, both bills introduce new definitions for the term independent contractor.

In Mississippi, two bills include language that specifically addresses insurance coverage for independent contractors in trucking. If the bills pass, it could substantially affect motor carriers who typically become the policyholder on group occupational accident plans and then offer coverage to owner-operators for a fee. If passed, these bills appear to mean motor carriers could no longer be the policyholder on such occupational accident plans. Owner-operators would have to find and secure their own coverage and separately provide proof of said coverage.

With so many variables it’s essential that you correctly identify I/Cs and get the proper amount of coverage. Occupational accident insurance (OAI) helps motor carriers fill the gaps. It mitigates the risk of an owner operator seeking workers compensation benefits, resulting in motor carrier costs including legal defense, potential award of benefits, thus uncovered claim, potential workers compensation premium charges for all owner operators.  A comprehensively designed policy reduces the risk of one bad injury creating financial stress for a motor carrier, and may helps attract and retain owner operators by providing a group program with group discounts.  Further, with a group plan, the insurance company providing the OAI group plan, may be willing to provide a contingent workers compensation liability plan, which provides the motor carrier with legal defense and workers compensation settlement / benefit costs if a covered contract driver seeks employee status for purposes of receiving workers compensation.

Part 3 of 3 Part Series  – Protecting Motor Carriers Against an O/O Work Comp Claim by Chris Pavone, Owner Operator Risk Manager at NRMS