While most persons use the words “worker” and “employee” interchangeably, the manner in which a worker is categorized could mean the difference between an insurance company’s acceptance or denial of a policyholder’s claim in the event an individual is injured on the job. Most Commercial General Liability (“CGL”) policies do not provide insurance coverage for claims arising from an injury to an employee, but will cover claims for other individuals injured on the company’s premises. While this distinction seems clear, determining whether a claim is covered can be difficult when an employer has temporary workers, leased workers, or independent contractors. 

Recently, the Sixth Circuit Court of Appeals provided a standard for determining whether a worker is considered an “employee” under a company’s CGL policies. In Western World Ins. Co. v. Burt Hoey, et al., the Court ruled that when a policy does not specifically define the term “employee,” the economic-reality test could be used to determine whether an individual is an employee of the policyholder. The economic-reality test is a multi-factor balancing test that asks whether the employer 1) had control of the worker’s duties; 2) paid the worker’s wages; 3) could hire, fire, and discipline the worker; and 4) whether the worker performed his/her duties in order to accomplish a goal that he/she shared with the employer.

In Hoey, the policyholder/employer operated a farmers’ market that offered hay rides to patrons. The employer hired a worker to operate the hay wagon for eight weekends. While on the job, the worker was severely injured in an accident with the wagon. The worker sued the employer for negligence. The employer sought coverage for the lawsuit under its CGL policy. The insurer asserted that the worker was an "employee" as defined in the policy and the claim was not entitled to coverage.

In ruling for the insurer, the Court applied the economic-reality test and determined that "employee" included all workers except those who are furnished by a third party for seasonal and short-term work. The Court noted that the employer personally hired the worker, paid the worker directly, directed the worker on what tasks to perform, and had the authority to fire the worker. Thus, the Court held that the worker was an “employee” and any costs or expenses arising from the injury were not covered by the employer’s CGL policy.

The Sixth Circuit’s acceptance and use of the economic-reality test is a departure from the usual approach that courts normally take. Most courts, including Ohio’s supreme and appellate courts, have interpreted undefined terms in an insurance policy in accordance with their commonly used meaning. Under the “commonly used meaning” approach, the court looks to the dictionary definition of a term and uses it to construe an insurance policy. Although Ohio has not directly addressed who qualifies as an “employee” under a CGL policy, it is probable that an Ohio court would focus on the definition of employee instead of a specific test. The economic-reality test is typically used in workers’ compensation law, but the Sixth Circuit expanded its application to the insurance context.

While CGL policies generally focus on providing insurance coverage for claims brought by the public and not a company’s employee, it is important to pay attention to the characterization of workers and the specific language of the policy to determine any limits on coverage. It’s a good idea to periodically reexamine the policy terms and how your company staffs its workforce. By reviewing the status of workers and the existing insurance coverage, an employer can avoid significant potential liability should an on-the-job injury occur to a worker.