Action Over Exclusion Explanation – What it is and why you do not want it.
If you are in the construction business, you will likely at some point bid on a job where having an Action Over Exclusion on your policy can be a deficiency. What is this exclusion & how does it apply? While each State’s laws are different, this is a general understanding of the mechanics.
Employees are typically precluded from suing their employers for work related injuries. If an employee gets hurt on the job, the employers Workers’ Compensation Policy gets triggered to cover damages to the employee. While the law restricts the employees ability to sue their employer once a Workers’ Comp policy is engaged; they can sue other parties who had negligence in the loss.
For example, a building owner hires a contractor to do work on their premises. The contracting firms employee falls off a ladder. The employee can access their employers Workers’ Comp policy to cover their medical bills. Suppose the employee feels the building owner was negligent in not letting them know that the floor was unstable. They can sue the building owner separately from their employer. Now typically, the building owners contract with the construction firm will have wording demanding the contractor hold them harmless and indemnify them.
So if you have no Action Over Exclusion – NO PROBLEM, the contractors policy will get triggered and will defend the building owner. However, if there is an Action Over Exclusion, no coverage would be extended to the building owner – even if they have a certificate naming them as additional insured.
In States like New York, the law puts ultimate responsibility on the GC & building owner. As such, they are very sensitive to hiring firms with this sort of exclusion. Moreover, very liberal States have Personal Injury attorneys advertising very heavily promoting personal injury lawsuits to injured employees, as such it is a hot topic. Even in Miami Florida (typically more conservative than New York or California), as I drove down I95 I noticed a tremendous amount of Personal Injury ads.
Bottom Line – when you bid on a job and present a policy with an Action Over Exclusion, you are essentially telling the GC & building owner that you will leave them high and dry in the event of a problem. As such, they are less likely to transact with you. The policy you would be presenting might have sufficient Liability Limits, but the application of those limits will not be utilized in a way to protect your partners.