There are lots of employers in Ontario who have decided to exclude their executives from WSIB coverage in order to reduce those expensive premiums. The cost-savings can be significant but it is vital to ensure that you have the correct insurance coverage in place to pick up the slack. A recent decision of the Superior Court of Justice underlines the potential costs of making a mistake in this area.1
Sam’s Auto Wrecking (“Sam’s”) operated a scrap metal business. In May, 1998 a tragic accident occurred in which a crane operator ran over the Operations Manager, John Ferber, severing the right leg below the knee and cutting the left foot quite badly. While Sam’s kept Mr. Ferber on the payroll for a few years, ultimately he left the company and commenced a legal action for damages arising from the accident. It turned out that some years earlier, Sam’s had discontinued WSIB coverage for the senior employees of the company, including Mr. Ferber. Sam’s believed that it had adequate coverage through its disability insurance policy provided through AFLAC.
Subsequent to discontinuing WSIB coverage but prior to the accident, Sam’s arranged for a comprehensive business policy through its insurance broker and, while the decision does not explicitly say so, presumably discontinued the AFLAC policy. That comprehensive business policy, provided through Lombard General Insurance (“Lombard”), included exclusion language which stated, in part:
This insurance does not apply to, ... (d) “Bodily Injury” to an employee of the insured arising out of and in the course of employment by the insured.
Unfortunately for Sam’s, by the date of the accident it had given up its WSIB coverage for Mr. Ferber and Lombard relied on the exclusion language in denying the claim made under the comprehensive business policy.
As a result of Mr. Ferber’s action, Sam’s commenced its own action against Lombard and the insurance broker which had handled Sam’s insurance needs during the relevant period. Ultimately, Sam’s and the insurance broker settled Mr. Ferber’s action with a joint payment to him totalling $950,000.00. Sam’s and the insurance broker then proceeded together against Lombard, arguing that Mr. Ferber was covered by that policy as an executive officer of the company.
In finding against Sam’s and the broker, the Court noted that an executive officer could also be an employee and it was in that capacity that Mr. Ferber was injured. As such, the exclusion clause meant that Lombard had no liability. It is also worth noting that the Court observed that Sam’s had never clearly advised the insurance broker that it had removed its senior employees from WSIB coverage.
The clear lesson for employers who have removed senior employees from WSIB coverage, or are considering doing so, is that is essential to have insurance coverage in place which will provide protection in the event of a work-related illness or injury to such employees. If your organization uses an insurance broker make sure that you have clearly advised the broker in writing of this situation and that you have received confirmation that it has been properly addressed.
Removing senior employees from WSIB coverage may create real cost-savings but, as Sam’s found to its dismay, there can be significant costs as well for employers who don’t ensure that the resulting gap is filled.