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Agent Sued by Own Family Who Declined WC Coverage

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Depending on the state and the circumstances, the law may or may not require employers to purchase Workers’ Compensation insurance. That does not mean, however, that exempt employers should not buy the coverage. Imagine an employer passing on the insurance, neglecting to do something required by law, finding out they owe Workers’ Compensation benefits, and deciding to blame their insurance agent. And further imagine that the agent is a family member.

A Nebraska couple owned a farm and ranch that they operated jointly with the husband’s father. Between the couple and the father, they had three employees. The Nebraska Workers’ Compensation Act does not require agricultural employers to carry insurance unless the employer has ten or more unrelated, full-time employees. The law permits such an employer to voluntarily purchase the coverage.

However, the law also says that, if an exempt agricultural employer decides not to buy Workers’ Compensation insurance, it must give each employee a written notice informing him that: 

        The employee is not covered by the Workers’ Compensation Act

        The employee will not receive benefits under the Act if he is injured or contracts an occupational disease while on the job. 

The employer is required to have the employee sign the notice. A copy of the signed notice must be retained. Failure to provide the notice automatically makes the employer subject to the insurance requirement.

The farm did not voluntarily purchase Workers’ Compensation insurance, nor did it provide the notice to its employees.

The husband’s aunt was their insurance agent. She obtained for them insurance on the farm along with personal insurance for their family. She and the husband discussed Workers’ Compensation insurance, but he complained that it was too expensive and noted that the law did not require him to carry it. She acknowledged that this was true; nothing was said about the notice requirement.

One of the employees got a thumb stuck in an auger, requiring the thumb to be “stitched … back on.” The farm’s liability insurer denied coverage based on a Workers’ Compensation exclusion in the policy. The employee sued, and father and son split the cost of paying the required Workers’ Compensation benefits.The court opinion did not state the amount, but the cost of the surgery for an amputation by itself must have been in six figures.

The couple sued the agent (his aunt) and her agency. The agent and agency asked for and received a ruling in their favor based on the law, and the couple appealed.

The appellate court ruled that: 

        Nebraska law does not consider insurance agents to be professionals; even if it did, the couple would have missed the two-year statute of limitations for suing.

        “... (T)his case turns on whether an insurance agent has an affirmative duty to tell an employer about the written notice and signature provisions …”

        “... (I)t would be an equally unreasonable burden to require an insurance agent to anticipate what steps the insured should take to not have the coverage he has already told the agent he does not want.”

        “There is no evidence that (the agent) provided (the husband) with false information; and for that reason alone, any negligent misrepresentation claim fails.” 

Farm work is dangerous; occupational injuries are likely and often serious. This agent did the right thing by making her nephew aware of the risks. She could not force him to protect himself. The one thing she might have done differently would have been to document their conversation in an email or letter. Even with a family member, it’s always better to confirm a decision not to buy insurance.

 

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