Recruitment InsuranceStandard & Non Standard Contracts

Welcome

The aim of this presentation is to provide you with a brief overview of Standard and Non Standard contracts from the perspective of an insurance company.

Hopefully at the end of this presentation you will understand how the two types of contract are defined by an insurer and how the differences affect your insurance covers.

If you have any questions, please contact me and I will be happy to help you.

Gary ChambersTechnical Director (Recruitment)PIB Insurance BrokersTelephone No. 0117 926 9937Email gary.chambers@pib-insurance.com

Contractual Agreements Overview

The main focus of this presentation is to make you aware of the elements of a contractual agreement that your insurers will be looking at when they ask you to break down your business activities into Standard and Non Standard terms.

The main clause in any contractual agreement of interest to an insurer will be the liability clause as it enables them to work out the likelihood of a claim and possible claims costs.

Insurers will typically ask you if you use “contract terms as recommended by the Recruitment and Employment Confederation.” Insurers are aware that these recommended contract terms use a liability clause which passes all responsibility for any liabilities to the hirer.

In the event that a temporary worker is injured on the hirers site or causes damage or injury to something or someone, the hirer’s Employers’ or Public Liability insurers will be responsible for settling the claim.

Likewise, should the temporary worker act negligently or make an error or omission while working at the hirers site, the hirer’s Professional Indemnity insurers will be responsible for any financial loss caused to a third party.

Contractual Agreements Overview

If your business does not use REC recommended terms, then it is likely that you will need to send them a copy of your Standard Terms of Business so that they can read the liability clause to make sure it contains a clause that will push the responsibility for liability claims onto the hirer.

If your current Standard Terms of Business do not carry a liability clause that pushes all possible liability over to the hirer,then it is recommended that you forward your terms of business to your legal advisor with a request that they assist with adding an appropriate liability clause.

Unfortunately your insurance adviser will not be able to help you with the wording of your liability clause, or pass comment on the rigidity of the clause. Insurance advisers are not qualified or insured for providing legal advice.

When your insurer is confident that your Standard Terms of Business push all possible liability onto the hirer, they can afford to charge lower premiums for this element of your business insurance, as they are in a strong position should a claim arise.

Contractual Agreements Overview

If your business signs hirers contractual agreements, your insurer will not be able to assess how onerous the contract wording is or predict possible claims costs.

Each Non Standard contract a recruiter signs can vary massively and typically pushes all the responsibility for liability claims back to the recruiters insurers, so the insurers charges slightly higher premiums for these contracts.

Most established recruitment insurance schemes automatically include the liability you accept when signing a Non Standard contract as long as you have declared to them that you supply temporary workers under these contracts.

When you complete you insurance proposal form at the outset, or your renewal declaration, the insurer will ask you to split your wageroll paid to temporary staff and turnover earned into the two categories of Standard Contract Terms and Non Standard Contract terms.

As long as you have declared Non Standard Contract amounts for wageroll and turnover, then your policy should automatically cover you. I would always recommend you check this with your insurance provider before assuming that you current policy works in this way.

Contractual Liability Cover

If your current insurance policy provides cover for the Non Standard contracts, there will be a Contractual Liability clause in the policy wording under the Employers’ and Public Liability sections.

The wording of the Contractual Liability clause will say something like this;

*Contractual LiabilityWe will pay the amount of damages and claims costs for which you are liable by law under a contract or agreement for the provision of temporary workers.

We will not cover claims 1. where the terms of any contract or agreement made by you, prevent us from taking over the full defence or settlement of the claim2. to pay liquidated damages, or any contractual fines or amounts payable under contractual penalty clauses.

The above policy wording clause simply states that insurers will cover any Non Standard contracts that your business signs, with the exception of any circumstance where the Non Standard contract does not allow your insurers to manage the claims process, or if you have signed any financial guarantee for work or penalty payment amounts.

Contractual Liability Cover

It is also very likely that you will see a “Supervision, Direction and Control” exclusion within you policy wording;

*Supervision Direction or Control We will not cover legal liability arising out of your responsible for any supervision, direction or control of any temporary worker or group of temporary workers placed out under a contract or assignment.

This exclusion restricts contractual liability, but only if the recruitment agency undertakes MSA (Master Service Agreement), where the recruitment agency is responsible for running an entire operation at a hirers location.

The insurer would require you to notify them if you are carrying out any MSAs as the potential for liability claims is greatly increased if you are overseeing and coordinating the temporary workers on a hirers site.

If your contractual liability clause says something like “Contractual Liability is cover to the extent that cover would have been provided in the absence of such a contract” your cover is very limited. This basically means that not everything you sign up to in the Non Standard contract liability clause will be covered, only the bits that would have been covered by your insurance if you had never signed the contract.

Non Standard Contract Clauses

Things to watch out forIf you have established that your policy wording does provide you with the contractual liability cover that your business needs, you still have be to aware of the following phrases in a Non Standard contract;

Waiver of SubrogationYour insurer relies upon their right of subrogation to act on your behalf to recover claims payments from a third party that is responsible for the a. Removing your insurers right to do this means that your business could end up paying out all claims without any ability to recover funds from the party responsible.

If you like, it is like giving the hirer a blank cheque book and giving them the authority to settle any claims even if the hirer is the party responsible for the claim.

I do see some recruitment insurance schemes that advertise that they include waiver of subrogation automatically. When I see this I am concerned that they are either misreading the policy wording or worse, they are happy for a recruiter to sign away this right and potential ruin their claims experience.

Non Standard Contract Clauses

Things to watch out for (continued)

The word “Indirectly”In some Non Standard contracts, the liability clause will state that you will have to pay a claim if you are “Directly or indirectly responsible or the loss”.

To my knowledge, there is no legal definition of in terms of boundaries for the word “indirectly”, and as such, this could mean that you will pay claims for any incident whether you are involved in the chain of events or not.

You should only ever accept responsibility for situations where there is a direct link to an action your business has taken.

Again, if you have the wide Contractual Liability cover under your liability insurance, you will have cover for the Non Standard contract liability clause you are signing.

Accepting responsibility for claims that are not your responsibility will seriously damage your insurance claims record.

Vicarious Liability Cover

Non Standard Contracts and Vicarious LiabilityIt is important to remember the following when reading this section;

Contractual Liability – This relates to the Employers & Public Liability sections of coverVicarious Liability – Relates to the Professional Indemnity section of cover

Professional Indemnity insurance provides the recruitment agency with protection for financial losses they cause to a third party for any negligent acts, error or omissions they cause whilst they carry out their activities as a recruitment business.

Adding Vicarious Liability cover to professional indemnity insurance extends the cover so that a recruiter is covering any negligent acts, errors or omissions made by a temporary worker whilst they are carrying out their activities at the hirers site.

You will only be required to cover the negligent acts, errors and omissions of the temporary worker if you have signed a Non Standard contract that states that you are required to provide this cover.

Vicarious Liability Cover

Non Standard Contracts and Vicarious Liability (continued)I have not seen to many Non Standard contracts that actually makes the recruitment agency responsible for the negligent acts, error or omissions of the temporary worker, so it is worthwhile checking any Non Standard contracts to see if you are required to take this additional cover out.

The idea of including Vicarious Liability was created by one of the recruitment insurance schemes about 8 years ago in an effort to provide wider cover for their clients. It isn’t needed by the majority of recruiters, but if you are signing NonStandard contracts you are probably safer including the cover.

There are different types of cover available – beware!If you have contractual obligations that mean your business requires Vicarious Liability cover, make sure you are getting the right version as there are a number insurance providers that offer a very narrow cover.

Vicarious Liability Cover

Non Standard Contracts and Vicarious Liability (continued)If you need to arrange cover for Vicarious Liability cover, the clause should look something like this;

Vicarious liability of temporary workers We will pay for any claim and defence costs relating to your legal liability under contract for errors and omissions made by a temporary worker provided by you.

We will not cover claims 1. where you are responsible for the direction and/or supervision and/or control of the temporary worker under the terms of the contract. 2. where the terms of any contract or agreement made by you, prevent us from taking over the full defence or settlement of the claim.3. to pay liquidated damages, or any contractual fines or amounts payable under contractual penalty clauses.

The above clause covers your legal liabilities which you have agreed to under a Non Standard contract, but excludes any claims that result from you managing the temporary workers on site. Your insurer must maintain control of the claims process and you will not be covered for any financial guarantees or fines/penalties you agreed to.

If you ever see a clause for Vicarious Liability that says that cover is provided “only in the event that the recruitment business has made the first error”, I would avoid it. If your business makes the initial error, then you should be covered under the standard professional indemnity cover anyway.

Thank You

I hope you have found this information useful, but if you have questions or would like your current insurance reviewed, please contact me and I will be happy to help you.

Gary ChambersTechnical Director (Recruitment)PIB Insurance BrokersTelephone No. 0117 926 9937Email gary.chambers@pib-insurance.com