FEATURE ARTICLE:
The Very Real Threat to Employer's Liability

In December 2004 a significant case came out of the Florida Supreme Court…one that brings a new and very real threat to Florida employers and carriers: a renewed attack on Employer's Liability and Coverage B.

Ever since the 2003 amendments to Florida's workers' compensation law, the combined topics of Employer's Liability and Coverage B have generated rampant concern among employers, carriers, and claims administrators. Why? Simply put, with these amendments Florida's legislature put a choke hold on the claimants' Bar through significant reductions in attorneys' fees and stricter standards for permanent total disability, and now there is a distinct fear of retaliation by the claimants' Bar through claims of employers' liability…and it is a fear that is justified.

On the one hand, it is certainly not unrealistic to believe that the claimants' Bar has been busy looking for the loopholes in this new legislation, and given the sharp decrease in benefits now available to seriously injured workers, and the fees available to pay those who represent them, it is easy to see how such an analysis has become a matter of survival for both groups. While Employment Practices Liability (EPL) exposures facing employers under various state and federal statutes are a very real threat, it is unrealistic to be concerned about any real threat of employer liability arising from workplace accidents and injuries in the face of Florida's strict standard for piercing the veil of the exclusive remedy. Unfortunately, the true threat lies elsewhere.

The real challenge facing Florida employers and carriers will arise from simple blackmail strategies implemented by the claimants' Bar to increase fees and settlements.

Travelers vs. PCR: A License to Steal
For Florida employers who are self-insured, employer's liability lawsuits driven by intentional tort allegations have traditionally increased bottom line claim costs, for even though most of these lawsuits ultimately end in dismissal, it usually takes an excessive amount of defense fees and costs to secure such a result. Carriers, on the other hand, have largely escaped this fate as intentional tort allegations are excluded from coverage under most GL policies.

Recently, however, the Florida Supreme Court held that a workers' compensation carrier might have a duty (depending on specific policy language) to defend and indemnify its insured employer in tort suits brought by an injured worker under the "substantial certainty" exception to workers' compensation immunity.

The Court held that Part Two of the Workers Compensation and Employers Liability Policy issued to PCR by Travelers, which covers claims for "bodily injury by accident" and excludes from coverage claims of "bodily injury intentionally (emphasis added) caused by [PCR]," extends coverage to a claim brought against PCR under the objectively-substantially-certain standard articulated in Turner. The Court held that a claim brought under Turner's objectively-substantially-certain standard does not on its own, or as a matter of law, fall outside the scope of this particular employer's liability insurance policy, and that public policy does not prohibit an employer from insuring against the risk of liability arising under Turner's objectively-substantially-certain standard.

Admittedly, the Travelers v. PCR decision applies to dates of accident prior to the 10/1/2003 virtual-certainty amendment to Chapter 440.11(1)(b), and the court specifically declined to answer the question of whether a claim brought under this newly enacted standard would fall outside such a policy. However, in a footnote, the Court observed that insurers remain free to craft policies explicitly limiting the scope of a "by accident" coverage clause or broadening the scope of an "intentional injury" exclusionary clause. What the court is really saying (and they do this quite often on issues like this) is that if insurers want to clear up ambiguities or confusion, they are free to draft their policies with language that clearly does so.

Therefore, it is quite clear that, even for lawsuits over accident dates of 10/1/2003 and later, any confusion or ambiguity created by such phrases such as "substantially certain" or "virtually certain will be ultimately resolved in favor of the insured employer, and carriers can expect to assume defense costs for any intentional tort lawsuits filed against their insured employers in Florida. And since carriers will have to hire separate counsel to represent these insured employers, defense costs stand to be even more excessive. The claimants' Bar knows this, and is gearing up to take advantage of it. Don't believe it? Imagine the following scenario:

"Despite the best efforts of claimant's counsel, litigation over an occupational injury results in a proposed settlement of only $10,000 for all remaining compensation and medical exposure. Both the claimant and his attorney are dissatisfied, so the claimant's attorney files an employer's liability lawsuit in Civil District Court alleging the employer was guilty of intentional tort under either the substantial or virtual certainty standard(s). Knowing the case will easily cost the employer/carrier in excess of $25,000 in defense fees and costs before it the case is finally put to rest, he offers to dismiss the case for an additional $10,000…settled in the Civil District Court and escaping any limitations or questions by the workers' compensation courts."

You consider your options. To stand and fight on principal will add significant costs to the bottom line, and increase caseloads and financial reserves. Yet to give in and settle will open simply encourage such behavior and open a veritable Pandora's Box for Florida employers and carriers.

What will Florida employers and carriers do? What should you do?

If you are a workers' compensation carrier, administrator, or self-insured employer, make sure your claim handlers know how to recognize and know what to do with an EL and Coverage B lawsuit. They contain serious liability issues and should be immediately referred to management and then to counsel. Time frames are short and penalties for lack of timely response to such a filing are potentially severe.

If you are a liability carrier, or face these liability exposures, be sure your claim handlers are well versed in issues of Employer's Liability and Coverage B, and that sound and frugal litigation management plan is implemented. Unfettered access to defend these cases are a dream-come-true for the defense Bar.

In either case, before simply taking the easy way out by settling the case, consider the impact to the industry as a whole.

*Note: For more information, advice or training on Employer's Liability and Coverage B, contact the PCCP/WCCP Associations and AE21 Incorporated, Florida's School for Claims Professionals at (800) 642-7774, or take the new online CE course at AE21 Online entitled, "Employer's Liability & Coverage B: Claims of a Different Color".