Certificating Exclusive Remedy
For The Florida Subcontractor
“The issuance of certificates is one of the more dangerous documents that float between insureds, insurers, and a myriad of third parties.” “In a great many instances, insureds have no idea of the potential liability created by asking for these documents, especially, when third parties are added as additional insureds. It is important that insureds realize the potential detrimental effect on their limits created by the addition of multiple third parties as additional insurer.” [1]
As an insurance agent, it is our role to, amongst other things, properly provide proof of insurance coverage to third parties that require it from our clients. This proof can be verbal, the policy, a binder, a compliance web site, but often, comes in the form of a certificate of insurance. While the actual insurance policy provided by the insurance carrier of record is always the most comprehensive proof of coverage, this document can be 10’s, if not 100’s of pages which makes it impractical to transmit amongst interested parties to prove insurance coverage. As a result, the issuance, review and acceptance of a certificate of insurance is standard protocol between parties when satisfying proof of proper insurance coverage.[2]
In December of 2022, the National Council on Compensation Insurance (“NCCI”) proposed “Approval of Item 04-FL-2022–Revisions to Basic Manual Rules for Subcontractors in Florida” an advisory via circular and the State of Florida adopted it regarding the process of certificating subcontractors for the purposes of proof of insurance coverage (see below). The State of Florida adopted this provision on January 30’th of 2023, which allows this rule to now be a permanent part of the NCCI Florida for Basic Manual for any policies incepted as of March 1, 2023, and forward. It should be noted that this advisory can now be adopted by any of the other 37 states where it is available via NCCI.
(b1) has a special note in bold when it comes to subcontractors as clients of employee leasing companies. In 30+ years of being immersed in the workers’ compensation industry, I have never seen a requirement to schedule employees as part of a certificate of insurance, so assume that is not the intent here. It does not state such but is also different from the insurance code that has been in place in Florida since 2007 (below). For option (b1), it is assumed that this was written for when the client company is in a master policy relationship with the PEO (in Florida statute an “Employee Leasing Company”), or specifically, not the “named insured” on a policy. The client is referred to in the notes section with language stated below in (i). In a master policy relationship, the client is not the named insured (The PEO is) and therefore employees can show to have coverage but actually do not. This of course is no different than the fraud existing in the overall construction market with “off the table” employees being hidden behind a credible certificate. Those employees on that certificate will be the only names provided exclusive remedy through workers’ compensation and that is immensely important to have right.
For option b2, the PEO’s client company must be the “named insured” on the in-force policy being certificated. This necessitates the use of a “minimum premium” policy (“MPP”) if the PEO is normally extending coverage by way of its master policy. For this, there is an additional cost to the subcontractor to pay for duplicate coverage. It should be noted that MPP’s are not provided as a usual course of doing business and by carrier accommodation only. They are issued to certificate only. Either a client-based policy without coemployment or a multiple coordinated policy could also be used, but not stated.
Unfortunately, there was no public working group or discussion on this new rule with whom it will have the most impact on; the agent, the PEO and the subcontractor. This would have been a suitable time for all stakeholders to have a seat at the table I would think, through the usual legislative process, especially those now subjected to the most liability due to this change. Since this administrative rule was adopted in 2007, certificates of insurance were governed by FL 69L-6.032, (1) (3)
Has the Florida Administrative code changed with this new rule? No, instead, it means we now have two rules not aligned in a critical area of providing proof of coverage. Foundationally, this starts with defining the business model. One concern I have is it no longer references Professional Employer Organizations or Employee Leasing companies as the 2007 rule does. Instead, only employee leasing companies, which is subtle, but considering all the confusion regarding staffing/EOR (transfer of labor) versus PEO (service agreement), not a small nor unnoticed nuance.
The Florida Joint Underwriting Association definition of Employee Leasing takes a whole different turn in ignoring the PEO definition altogether, and instead grouping employee leasing companies with staffing companies and suggesting no difference exists in the two models throughout their site. An excerpt, “Given such, the Employee Leasing Company or Staffing Company will not be permitted to provide Leased Workers or Assigned Workers to a Client that is not eligible for FWCJUA coverage. Further, the direct employees (non-leased workers or non-assigned workers) of the Client cannot be included on the FWCJUA policy issued on an MCP basis as these Client policies are issued solely to accommodate the Employee Leasing Company's and Staffing Company's leased workers and assigned workers provided under Employee Leasing Arrangements or Staffing Arrangements.”
Instead of relying on case law as has been historic precedent, the carrier or PEO now has a definitive defense to deny claims based on non-payrolled employees. While there is nothing that states such in this rule, it is hard to believe in a courtroom that this census will not be argued to be the same as an endorsement to a policy in the provision of proof of coverage. While I understand the intention is to neutralize fraud, charge proper and earned premiums and be more precise about who is covered in PEO arrangements, the rule is simply untenable to manage as an agent or PEO as we do not control the jobsite. It has potential errors and omissions exposure brought on the agent for activities he or she has no control of (who is on a job site for a sub they have never met). This agent could be internal, external or both. In that event, where workers’ compensation is not properly procured or deemed to be misrepresented (i.e. defective certificate with incorrect employee names), exclusive remedy goes out the window and tort liability comes in the window with much more dramatic outcomes.
We are now two weeks after this rule was adopted and two weeks prior to the application of it. I hope that some type of guidance is forthcoming on who this rule impacts and how it is intended to be different than the existing administrative code. Even things like “an employee census” are unclear on the amount of data required or format. PEOs provide an extremely valuable service to all business sectors, but construction is certainly one based on a PEO’s ability to handle the non-operational components on being a contractor that they, or most small business, have trouble with on their own. It scares me that the confusion and administrative burden of this rule will create unnecessary barriers for subcontractors to use PEO, thus driving construction costs in our state even higher than the surge we have seen over recent years. It is time the issue of uninsured employees and premium fraud is resolved, but this is not how we get there as a marketplace.
[1] IBID
[2] https://www.irmi.com/articles/expert-commentary/certificates-of-insurance
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All writers specialize in Professional Employer Organization (PEO) business services such as Workers Compensation, Mergers & Acquisitions, Data Management, Employment Practices Liability (EPLI), Cyber Liability Insurance, Health Insurance, Occupational Accident Insurance, Business Insurance, Client Company, Casualty Insurance, Disability Insurance and more.
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