One employer’s failure to provide workers compensation for executives has led to a string of lawsuits and at least one appeal. Are your executives covered?
In 1989 or 1990, Sam's Auto Wrecking Co. Ltd. (Wentworth Metal) removed workers compensation coverage for its management team and replaced it with disability insurance. The firm, a scrap metal operation in Hamilton, ON, believed the change would provide the same coverage at a lower cost. Neither assumption would prove to be accurate.
In May 1998, operations manager John Ferber was badly injured in an incident involving Bill Cooper, a co-worker. While Cooper was using a crawler crane to remove goods from a truck, the crane struck and ran over Ferber, badly injuring his foot and leg. At the time, Ferber was supervising the unloading.
Ferber was considered a member of the management team, and so not eligible for workers compensation. After Lombard General Insurance Company denied coverage under Wentworth Metal’s disability insurance policy, the following legal proceedings took place:
Ferber sued Wentworth Metal and Bill Cooper for damages.
Wentworth Metal launched a suit against the insurance company as well as the insurance brokerage and the broker who had secured the insurance. Wentworth Metal alleged negligence for failing to provide insurance coverage for claims by an employee not covered by workers compensation.
the insurance brokerage cross-claimed against the insurance company.
The short-term outcome: compensating Ferber
In September 2003, five years after his injury, Ferber received $950,000 in a settlement paid by or on behalf of Wentworth Metal and Cooper ($200,000) and the brokerage ($750,000).
After this settlement, Wentworth Metal discontinued its action against the brokerage but continued its claim against the insurance company. The brokerage also continued its cross-claim against the insurance company. Both Wentworth Metal and the brokerage wanted indemnification from the insurance company for the money they had paid to Ferber.
The longer-term outcome: the employer vs. the insurer
A superior court judge dismissed the claims against the insurer, holding that Ferber was an employee at the time of the incident, and an “employee injury exclusion” in the insurance company’s commercial general liability policy excluded it from having to compensate for Ferber’s injuries.
Wentworth Metal appealed on the grounds that Ferber was an executive officer, not an employee. Even if he was an employee, said the company, the employee injury exclusion does not extend to employees who are also executive officers.
Wentworth Metal lost the appeal. In his decision, the appeal court judge concluded the following:
commercial general liability coverage is intended to protect the insured against losses to third parties or to the public arising out of the operation of the insured’s business. The coverage is not intended to protect the insured against losses to its own employees from workplace injuries.
while the insurance policy’s employee injury exclusion makes no distinction between employees and executive officers, it states that the insurance holder is not covered for bodily injury to one of its employees arising out of and in the course of employment with it.
Ferber’s injuries occurred as a result of his employment with Wentworth Metal.
Implications for employers
The appeal court judge notes in his decision that Wentworth Metal had at least one and likely two options for eliminating the gap in its coverage. It could have
maintained its original coverage of executive officers under the Workplace Safety and Insurance Act.
purchased an employer’s bodily injury liability coverage extension from the insurance company.
“The existence of this endorsement combined with Wentworth’s decision to take Ferber out of workers compensation coverage shows that in this litigation, Wentworth is seeking a benefit it never paid for: insurance coverage for an employee not covered by workers compensation.”
As a consequence of failing to provide injury compensation coverage for its management team, the business
lost what one of its owners described as “an excellent employee” when John Ferber quit to pursue his compensation claim against it
triggered a series of claims and counter claims that resulted in two court cases, both of which the employer lost
had to pay $200,000 in a settlement to Ferber
incurred legal fees over the 13 years in which the claims worked their way through the courts, plus some court costs.
Bottom line: Protect your employees and your business from injury and financial loss. Ensure your management team is covered for workplace injuries or illness by workers compensation or liability insurance.
Possible next steps
Download a copy of the appeal court decision by going to Court of Appeal for Ontario. Click on “March,” and scroll down to “Sam's Auto Wrecking Co. Ltd. (Wentworth Metal) v. Lombard General Insurance Company of Canada.”
Enquire about employer coverage from the Workplace Safety and insurance Board. In the search function, key in “employer forms” and scroll down to “Employer Coverage.”