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Don't be blindsided by the Borrowed Servant Doctrine

In today's world of multi-faceted employer-employee relationships, it is important to understand your exposure under the antiquated sounding, "Borrowed Servant Doctrine." This comes into play when an employee may be subject to the control and direction of an entity other than the primary employer. There are several situations where this occurs, including temporary staff who work for a temporary staffing agency (not to be confused with PEOs where risk management concerns differ), property managers who work at a specific property, employees who are assigned to work exclusively at a client's location, such as accountants or IT personnel, or contractual relationships between a general contractor and subcontractor.

In such situations the employer is considered the "direct employer" and the "borrowing" business is the "special employer." While the laws vary by state, it is important to understand the nature of the relationship so that there are no gaps in insurance protection, which can lead to "third-party" lawsuits.

According to insurance expert, Christopher J. Boggs, Director of Education at Insurance Journal Academy of Insurance, control and the right of control is the overriding and deciding factor when analyzing the relationship. "Control only over the work being done is not sufficient; before status as a special employer can be assigned, the right of control must also encompass the manner in which the work is performed."

While direct employers may not be relieved of their duty to provide Workers' Compensation benefits to borrowed servant employees of a special employer and Workers' Compensation is the exclusive remedy for the injured worker, special employers have an exposure that may warrant additional coverage.

Boggs notes that the Alternate Employer Endorsement (WC 00 03 01A) is designed to extend Workers' Compensation protection to the special employer's "borrowed servants." Attached to the direct employer's policy, the endorsement specifically names the special (putative) employer thus extending the required Workers' Compensation protection without the need of the putative employer to make any adjustment to its policy. If you are the special employer, this could be a good solution, but if you are the direct employer moving the coverage to the special employer may be the best solution.

If this sounds confusing, it is. Regardless of your position in this relationship, all parties need to be aware of and plan for the possibilities and it is best to review the situation with your agent.