Companies are often advised to structure their operations so that employees are engaged by one group entity, business operations are conducted through another group entity and assets are held by a separate group entity.
This is often sound advice and can offer strategic advantages in terms of enterprise bargaining and asset protection. However, this can result in unintended consequences for the group insurance program.
Employing entities are required to hold workers’ compensation insurance to cover their liability to pay compensation and common law damages when employees are injured during the course of their employment.
The company group will also usually carry a policy of liability insurance which covers the liability of the group’s operating and asset owning entities.
A common misconception in these situations is that having placed all employees in the employing entity, only that entity faces potential liability exposure to claims by those employees. However, in many injury scenarios, the operating entity and the asset owning entity may also face liability exposure. An example of this is where they ‘occupy’ land or a building or conduct operations which make them responsible for the injured worker’s safety.
In the absence of any intra-group entity agreements which clearly set out the roles of each group entity, we regularly see the non-employer group entities become involved in worker injury claims. These claims are then notified under the group’s liability insurance program.
Often, liability policies will be subject to significant policy deductibles for worker claims, which must be paid by the non-employing entity. This can place pressure on the liability insurance program and result in an unintended transfer of workers’ compensation risk to the operating entity’s balance sheet. Liability Underwriters are increasingly aware of these structures and may price their premiums accordingly.
If you are operating a business through multiple group entities, you should consider the potential insurance implications at the structuring stage. We can assist with the strategic structuring of your business operations, and help you to make informed decisions about your business operations and their effect on your workers’ compensation and public liability insurances.
