The International Risk Management Institute (IRMI) defines third-party-over action as: “A type of action in which an injured employee, after collecting workers’ compensation benefits from the employer, sues a third party for contributing to the employee’s injury. Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer by prior agreement. Depending on the nature and allegations of the action, coverage may be afforded under the contractual liability section of the employer’s commercial liability policy or the employers’ liability section of the employers’ workers’ compensation policy.”
What is an “action over” exclusion under the General Liability (CGL) policy?
The “action-over” exclusion is generally found on a non-admitted carriers general liability form. If you’ve entered into a master service agreement that requires you to provide “action over” coverage and at the time of a claim it’s found that you don’t have the “action over” coverage, your policy will not defend you in a lawsuit or pay for the damages.
There are two ways to determine if your CGL policy excludes coverage for action over. The insurance company will either attach an endorsement named “Action Over Exclusion” or Action Over is excluded in the language under Section I – Coverage A: Bodily Injury and Property Damage.
Obviously, if you see “Action Over” listed as an exclusion, you know without a doubt that your policy does not provide this coverage. However, looking for the language in the policy coverage form is more challenging.
For purposes of this article, we’re going to discuss the ISO CG0001 form, 12/07 edition. When reviewing the language of this form, Section I – Coverage A, 2 Exclusions, e. Employer’s Liability, it excludes – bodily injury to (1) an employee of the insured arising out of and in the course of:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of the insured’s business; or
(c) The spouse, child, parent, brother or sister of that employee as a consequence of Paragraph (1) above.
This exclusion applies whether the insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone. “This exclusion does not apply to liability assumed by the insured under an ‘insured contract’.”
The key language in this exclusion is that the Action Over coverage is given back to the insured by the statement, “this exclusion does not apply to liability assumed by the insured under an insured contract.” When this exception is not given in the language of the policy form, Action Over claims are excluded.
Why is Action Over coverage important under the CGL?
While an injured employee can collect benefits from a workers’ compensation policy and the Employer’s Liability section of a workers’ compensation policy should provide coverage for action over claims, most standard Employer’s Liability policies exclude coverage for liability “assumed in a contract.”