20 Dec The Danger Within: Domestic Liability Exposure
Many homeowners employ an employee, whose duties are related to the maintenance or use of the owner’s home, including household or domestic services. Unfortunately, many of these same homeowners do not fully understand the risks associated with employing a domestic employee, or whether such risks are covered under their homeowners’ insurance policy.
What happens if a domestic employee suffers a serious injury while working? Will the homeowners’ insurance policy cover the claim? Will the homeowners be covered if the domestic employee sues for damages? Since the cost of a severe injury could be significant, it is better to know the answers to these questions sooner rather than later. This is done by reviewing the homeowners’ policy to determine whether domestic employees are covered, and, if so, to what extent.
While a particular policy may exclude coverage for domestic employees, there are standard form insurance policies that do provide coverage, though it may be limited by various qualifications and conditions found throughout the policy. Accordingly, when determining the scope of coverage for domestic employees, who are also known as residence employees, it is necessary to read the policy’s “fine print.”
A standard form homeowners’ insurance policy may provide coverage for personal property owned by a domestic employee, provided such property is located in the residence of the insured. If a domestic employee suffers bodily injury in an accident, a policy may cover the domestic employee’s medical expenses in specific instances, provided the bodily injury did not occur away from the residence while the employee was not working. However, since this coverage often comes with relatively low limits, it will only protect a homeowner in instances involving very minor injuries.
A standard homeowners’ policy may also cover a third-party’s medical expenses if the person is injured away from the insured’s home, and the injury is caused by a domestic employee in the course of his or her employment with the homeowner, though the extent to which any injured person is covered may depend on the availability of other insurance. Additionally, various exclusions, such as the motor vehicle liability, watercraft liability, and aircraft liability exclusions, may not apply in some cases involving a domestic employee.
Although the foregoing coverages may prove valuable, the biggest concern is whether a policy would protect a homeowner from personal liability in the event a domestic employee is injured while working. In these instances, the homeowner’s potential liability could be financially devastating.
An insurance company will defend a lawsuit and pay damages up to the coverage limit for which the homeowner is legally liable, unless the claim is excluded under the policy. Thus, the relevant question is whether a claim made by an injured domestic employee is excluded from coverage. The answer typically turns on whether the domestic employee is eligible to receive workers’ compensation benefits.
A standard form homeowners’ insurance policy typically excludes coverage for bodily injury to any person who is eligible to receive any benefits voluntarily provided or required to be provided by the homeowner under any workers’ compensation law. To determine whether a claim filed by an injured domestic employee would be covered by the policy, one or two questions must be answered.
The first question is whether the homeowner is required by law to provide workers’ compensation benefits to the domestic employee. Since workers’ compensation is largely a matter of state law, the answer depends on location.
In New York, a domestic employee working 40 or more hours per week for an employer must be covered by workers’ compensation insurance, as do “live-in” domestic employees regardless of any set hours. Accordingly, any claim brought by an injured domestic employee who is eligible for workers’ compensation insurance under New York law will be excluded under the standard homeowners’ policy, even if the homeowner failed to obtain the requisite workers’ compensation insurance.
In Florida, domestic employees in private homes are generally not entitled to workers’ compensation benefits. Since a Florida homeowner is not typically required to provider workers’ compensation benefits, determining whether a domestic employee’s claim will be excluded leads to a second question: Does the homeowner provide workers’ compensation benefits voluntarily?
Under Florida law, an employer may voluntarily accept to be bound by the provisions of the workers’ compensation laws even though an employee, such as a domestic employee, is exempt from such laws. Why? To invoke workers’ compensation immunity as a defense to being sued by an employee who was injured while working.
Because the security of immunity may outweigh the cost of providing benefits, an employer may provide workers’ compensation benefits despite no legal obligation to do so. If this is the case, a claim brought by a domestic employee will not be covered by the standard homeowners’ policy because the employee is eligible to receive workers’ compensation benefits, albeit voluntarily.
So, a claim will not be covered under a standard homeowners’ policy if the domestic employee is eligible to receive workers’ compensation benefits, regardless of whether such eligibility is required by law or provided voluntarily. As written, the standard exclusion would likely apply even if the employee does not receive any workers’ compensation benefits because eligibility, rather than receipt, is the key.
Before a risk can be managed, it must be understood. Without knowing the probability and degree of potential liability exposures, as well as options for controlling the frequency and severity of such exposures, it is impossible to make an informed decision. For those with domestic employees, the first step is to review their homeowners’ insurance policy to find any gaps in coverage. The next step will depend on the extent to which the homeowner is comfortable assuming the financial risk of any such gaps.
Since reviewing a policy and determining the applicability of various laws can be complicated, it is helpful to consult an experienced and reputable insurance agent. If you would like to learn more about protecting against the risks created by domestic employees, or if you would like to discuss your insurance options, please contact us.