An Occupational Accident (Occ/Acc) insurance program is intended to provide benefits (medical expenses, lost wages due to disability, accidental death, etc.) for independent contractors (ICs) in the event of an occupational or non-occupational related accident. Occ/Acc was designed to be an affordable alternative to Workers' Compensation (WC) and with appropriate benefit levels, can mitigate the risk of ICs seeking employee status1.
As a supplementary risk management function, the Occ/Acc insurance broker and Occ/Acc insurance carrier build a Contingent Liability (CL) platform providing additional protection for the motor carrier. This CL policy contains a duty to defend, covering the cost of legal defense if an IC files a WC claim alleging employee status. Ultimately, the CL policy will respond to WC benefits owed in the event an IC is deemed an employee2. Facilitating an Occ/Acc program for ICs in conjunction with the CL platform and coordinating this program with the corporate WC for the motor carrier offers the highest level of protection from ICs seeking employee status and WC benefits.
It is important to note that not all CL policies are created equal. Individual state statutes and case law of WC requirements drive the IC /employee environment. As a result, insurance carriers have their own interpretations of these rulings and provide unique solutions with various policy limits, benefit levels and state exclusions. A thorough analysis of a fleet's composition (state(s) of operation, drivers' state(s) of residence, age of drivers and state in which the corporation is domiciled) must be weighed when determining the entire risk to a motor carrier.
Here is an example to consider...
Buck, an Independent Contractor / Owner-Operator (IC) leased to Trent Transport, is strapping down his flatbed load when a strap snaps and hits him in the eye. Buck is rushed to the hospital where he loses his eye. He must now learn to live with 50% of his vision and will not be able to work in any job until he completes therapy.
Trent Transport does not require its ICs to provide proof of their own Workers' Compensation (WC) or Occupational Accident (Occ/Acc) policies, let alone have a settlement deduction Occ/Acc program.
Buck doesn't have insurance. Therefore, he doesn't have a way to pay his medical bills, he doesn't have an income for his disability time off, and he isn't receiving compensation for the loss of his eye.
Buck has an attorney friend who tells him that one way he could potentially cover his costs and receive some compensation would be to file a lawsuit with the State Workers' Compensation Board claiming that he was truly an Employee of Trent Transport, as opposed to an IC.
If Buck is successful in "proving" that he was an Employee rather than an IC, Trent Transport is now unnecessarily exposed to the following:
- Defense costs for both parties in the lawsuit
- The Settlement awarded to driver
- Subject to each state's statutory limits
- Paid by Trent Transport's WC Insurer
- Back taxes/benefits for all IC's
- Back WC premium for all IC's
- Additional fines
If Trent Transport had a properly set-up IC program with a solid lease agreement requiring all ICs to obtain work accident coverage, and the ICs further had the option of coverage via the Trent Transport settlement deduction Occ/Acc program, they would have had a Contingent Liability Policy (CL) built in.
So in this case, Buck would have had Occupational Accident coverage and he would have been covered for all his medical costs, his disability time, and for the loss of his eye. Ninety-nine percent of the time, the Buck's of the world are pleased with this coverage. But even if he still was not happy and wanted to press for WC benefits, the CL would have covered Trent Transport for both defense costs as well as Buck's actual settlement amount (if any).
Under this scenario, Trent Transport would have prevented their WC insurer from being dragged into an IC issue, they keep the state(s) off their back, and they have the IC (Buck) properly covered upfront so he can recover better, faster.
- 1 Occupational Accident coverage is not Workers' Compensation. Insurance carriers use negotiated, fixed expense levels and time restrictions on benefits paid.
- 2 For a motor carrier to be covered from the Independent Contractor filing for WC benefits, the Independent Contractor must participate in the Occ/Acc plan facilitated by the Motor Carrier.