KEY TAKEAWAYS:

• New York presumes a workers’ compensation policy covers all employees; a carrier must prove that a clearly written exclusion applies.

• Ambiguity is resolved in favor of the injured worker, but courts will enforce clear policy language as written.

• A limited other states endorsement is meant for temporary out-of-state work – and may not cover even a short-term New York job.

• If you are doing extensive work outside your home state, or opening additional operations, consider a new policy within that state.

• Consider contingent liability insurance for short-term out-of-state work, and ensure the contingent carrier is involved with the file from day one.

A common problem in New York workers’ compensation is the question of whether or not coverage exists. Although this seems straightforward on its face, not all policies spell this out to the satisfaction of the New York Workers’ Compensation Board or the Appellate Division.

The Starting Point: A Policy Is Presumed to Cover All Employees

Under Workers’ Compensation Law § 54(4), an employer’s policy is “deemed to include all employees of the employer employed at or in connection with the business of the employer,” unless explicit exclusions are stated. The Board typically favors injured workers and reviews policies to find coverage for their claims. If there is ambiguity to be found, the Board will construe that ambiguity in favor of the injured worker.

Carriers can attempt to avoid coverage of certain claims by asserting that exclusions apply to relieve them of coverage. The Board reviews each policy on a case-by-case basis and decides whether the set of facts meets the criteria to exclude a claim under specific policy endorsements. Carriers should therefore ensure that their exclusions are clearly laid out in their policies to avoid an unfavorable decision and a claim being established against them.

How the Courts Read Exclusions – and Where They Draw the Line

New York State courts have generally been claimant-friendly on this issue and require carriers to clearly establish that an exclusion applies:

• When a carrier contends that an insurance policy exclusion applies to relieve it of liability in a case, it must provide evidence to support that contention; the “bare assertions” of the carrier or its counsel will not suffice (Matter of Hutchinson v Lansing Conduit Corp., 68 AD3d 1362 [2009]).
• “Exclusions in workers’ compensation insurance coverage are not to be extended by interpretation or implication but are to be accorded a strict and narrow construction” (Matter of Ovando v Hanover Delivery Serv., Inc., 13 AD3d 780 [2004]). In Ovando, the carrier put only the first page of a five-page policy information page into the record, and the court upheld the Board’s finding that the policy was ambiguous as to New York coverage.
• “[B]efore an insurance company is permitted to avoid policy coverage, it must satisfy [its] burden … of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation” (Seaboard Sur. Co. v Gillette Co., 64 NY2d 304 [1984]).

The case law is not one-sided, however. When policy language is clear, the courts will enforce it:

• Although insurance policies are to be construed liberally in favor of the insured and strictly against the insurer, provisions in the policy that are clear and unambiguous “must be given their plain and ordinary meaning, and courts should refrain from rewriting the agreement” (Government Empls. Ins. Co. v Kliger, 42 NY2d 863 [1977]).
• Where no coverage exists under a policy as written, “the doctrines of waiver or estoppel may not be invoked to create coverage” (Sena v Nationwide Mut. Fire Ins. Co., 224 AD2d 513 [1996]).

In short, ambiguity is resolved against the carrier, but a carrier that drafts clearly – and proves its policy terms with a complete record – can prevail. The limited other states endorsement illustrates both sides of that rule.

A Closer Look: The Limited Other States Endorsement

A limited other states endorsement, in its simplest terms, is a section of a workers’ compensation policy that intends to provide coverage to injured workers outside of the insured’s home state. For example, this might include a trucking company from Maryland that only occasionally delivers within New York State. However, the coverage will generally extend only if specific conditions are met.

The purpose of a limited other states endorsement is to allow employers to conduct temporary business in another state without purchasing an entire policy for that specific state. This is especially relevant for trucking companies that conduct business in a general geographic area but might, from time to time, end up conducting business outside of that general geographic area. However, whether out-of-state work is truly temporary can be a point of contention, and the answer can change drastically on a case-by-case basis.

Endorsement language varies, so the specific policy controls. In practice, however, coverage under a limited other states endorsement generally depends on all of the following:

1. The employee primarily works within the state or states in which the policy is issued;
2. The work in the state where the injury occurred is irregular, short-term, and with no set future work within that state;
3. The employer does not have any locations, offices, or other operations within the other state; and
4. The claim is not brought in a state whose law requires the employer to carry its own coverage there. New York will generally find jurisdiction over any injury that occurs within its borders; the next step in the analysis is to determine whether a carrier actually provides coverage.

How This Played Out in Chmura

Matter of Chmura v T&J Painting Co., Inc., 83 AD3d 1193 [2011], shows how strictly these conditions are applied. A New Jersey painting contractor with no New York office sent an employee, a New York resident, to work on a New York project that lasted only five or six days. The employer’s carrier had issued a New Jersey policy with a limited other states endorsement. The Board found the endorsement ambiguous and held the carrier liable. The Appellate Division, Third Department, reversed. The endorsement clearly excluded claims made in a state that required the employer to carry its own coverage, New York law requires employers to insure employees working in New York, and the endorsement expressly warned that an employer beginning operations in another state must obtain coverage in that state. Even though the work was temporary, the carrier was not liable.

The court also rejected the argument that a certificate of insurance stating that coverage extended to New York created coverage. A certificate is not the policy, and it cannot change policy terms that limit coverage to the home state.

Why New York Applies a Strict Analysis

The rationale by New York State courts for this strict analysis is to prevent employers from circumventing New York’s requirement that employers secure coverage for their employees. If an employee does not generally work within the home state of coverage, coverage will likely not apply to injuries occurring in New York State. Additionally, if the work is more than temporary, and the employee regularly conducts business in New York State, coverage may not apply even where the employer has no offices or locations here. And as Chmura shows, even short-term New York work may fall outside the endorsement.

Practical Steps for Carriers and Employers

For carriers: drafting the policy

• Plan ahead to avoid a finding of coverage against the policy by clearly defining terms and phrases. Include a definitions section that defines key terms ahead of time – for example, who qualifies as a “regular” employee.
• State explicitly which potential workers are excluded from coverage, and confirm the dates of coverage. We cannot stress enough that unambiguous language should be used in the policy.

For carriers: when coverage is litigated

• Provide counsel with a complete copy of the policy as soon as possible so endorsements and exclusionary language can be reviewed.
• Preserve all legal defenses, in addition to raising the issue of coverage.
• Submit a complete copy of the policy into evidence so it is included in the record for review. As Ovando shows, a partial policy can create an ambiguity the carrier cannot overcome.
• If necessary, present an underwriter to testify regarding the policy.
• Investigate to establish the date of the alleged injury or date of disablement, and obtain evidence from the employer confirming the period of the claimant’s employment.

For employers working across state lines

• If work is conducted in a separate state that would be considered more than temporary or sporadic, a separate policy for that state should be secured. This is especially important in a state like New York, where the black-letter law generally allows an injured worker to pursue a claim in New York if the injury occurred there. Failing to do so opens up significant liability as an “uninsured employer.”
• Review the “other states” section of your policy’s information page, and do not rely on a certificate of insurance to confirm out-of-state coverage.
• Employers who might perform work out of state, even for a short, temporary period, should consider contingent liability insurance. As the name indicates, coverage is contingent on a finding that the employer does not have coverage in a specific state. At that point, the contingent insurer steps into the shoes of the normal workers’ compensation carrier.
• Contingent insurance policies can be strict, so it is important to ensure that the contingent insurer is involved with the claim from start to finish. Most important, the contingent insurer should be involved in any settlement negotiations and must provide its consent. Failure to do so can result in the waiver of contingent liability coverage – much as a claimant who settles a third-party action without the carrier’s consent can lose future benefits under Workers’ Compensation Law § 29(5).

The Bottom Line

Coverage disputes in New York tend to turn on two things: what the policy actually says and what the record proves. Carriers that draft precisely and build a complete record, and employers that match their coverage to where their employees actually work, are best positioned when a claim crosses state lines.

If you have questions about how these issues affect your policies or claims, please contact Danielle O. Nelson, Justin P. McCombs, or another member of Goldberg Segalla’s Workers’ Compensation team.