Risk transfer. The contractual shifting of risk from one party to another.
In staffing, the two primary instances of risk transfer for staffing firms are via their insurance policies as well as the contracts they enter into with their clients. Insurance policies are utilized to transfer risk to an insurance carrier in exchange for payment of a premium. And through contracts with clients, risk can be transferred to or from the staffing firm in various specified scenarios, depending on the terms of the contract.
As client-dictated contracts are becoming more common in the staffing industry, staffing firms need to pay heightened attention to the risk they agree to assume under these contracts and ensure they understand the degree to which that risk is covered under an insurance policy and when they are assuming contractual risk for which they do not have insurance coverage.
Insurance provisions in a client contract specify the insurance coverages a staffing firm agrees to maintain, as well as the limits required for those coverages. A client contract may also require specific endorsements to be made to those coverages to extend benefits to the client. Some commonly requested endorsements are:
- Additional Insured: When added to a liability policy, it obligates your insurance carrier to defend and pay claims made against an outside organization for their negligence.
- Primary & Non-contributory Status: States that your insurance policy pays first (primarily, before any excess policies make payment) without any contribution from any insurance policies that the additional insured may have (for example, your client’s own general liability policy).
- Waiver of Subrogation: When your insurance policies pay out a claim on your behalf, but other parties’ negligence contributed to the claim, your insurance company has the right to subrogate against those negligent parties to try to recover funds to cover the amount they have paid out. When you waive your subrogation rights, the insurance carrier cannot pursue the third party, regardless of their negligence.
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Indemnification provisions can obligate the staffing firm to assume risk beyond what their insurance policies will cover. Various insurance policies respond to different types of injuries and damages that result from business activities. For example, general liability coverage responds to bodily injury and property damage suffered by third parties on your premises or from your operations.
Liability policies only respond to claims for damages that you’re legally obligated to pay, where the most common legal obligation responded to is negligence. Staffing firms are frequently asked to agree to indemnify, defend and hold harmless their clients for broader scenarios than instances of negligence. For example, language like the following exposes a staffing firm to uninsured contractual risk:
“Staffing firm shall indemnify, defend and hold harmless client from and against any and all claims arising from the acts or omissions of Staffing firm and its employees.”
“Acts or omissions” is very broad language that could encompass several scenarios that don’t necessarily involve any wrongdoing on your employee’s part. What if your employee correctly utilizes machinery that malfunctions and causes harm or damage? Your employee’s usage of the machine is an act. What if your employee stood by and didn’t physically intervene in a situation where a third party was injured in the workplace? Failure to act is an omission.
Neither of these situations involves wrongdoing or negligence on your employee’s part, and because of that, are unlikely to trigger a response from your general liability policy. It could, however, still trigger a contractual requirement that you pay for both defense costs and damages incurred by your client. Contract language should be worded more narrowly and with consideration of your insurance coverage. A staffing firm should consult their insurance broker for more ways to minimize risk.
