Do I still need to recommend Ohio Stop Gap Liability to my customers?

The answer, YES!

There has been a varying degrees of misinformation on this subject since the Ohio Supreme Court rulings came down March 25, 2010.  Many clients with a limited knowledge of the Ohio Stop Gap coverage form, mistakenly believe they no longer need the coverage.  This is false and needs to be addressed.

Let us first discuss the exposures covered by Ohio Stop Gap coverage:

  1. Third-party-Over Actions
  2. Consequential Injury (Loss of consortium, loss of services, etc) to an injured employee’s family members.
  3. Dual Capacity claims
  4. Intentional tort claims
  5. Claims for injury or disease not covered by a workers compensation policy.

As you can see there are numerous areas where an insured could have a potential stop gap claim.  Number 4 is the only one that was affected by the supreme court decision. 

In 2005 the Ohio Legislature enacted legislation (RC § 2745.01) which restricted injured parties looking to file Intentional Tort claims to meet the higher status of “direct intent”.  It was expected that this legislation would be challenged on constitutionality grounds and it took time for it to work its way to the Ohio Supreme Court.  On March 25th of 2010 the legislation was upheld.  A decision in the favor of employers and legislators.

So what does this mean?

Well, claims can still be filed for the other 4 exposures plus an injured party can still file suit alleging direct intent.  Through discovery  and motions it could take time to determine if the allegations of “direct intent” meet the standard to allow for a lawsuit.  There would be defense costs during this period, which could take a year or two to shake out which way it would go.  If it is determined that it is NOT direct intent, then the lawsuit would be thrown out.  If it is determined that it WAS direct intent, it is against the public good to insure for this exposure and the defense would cease.

So as I stated before it is imperative that you continue to recommend that your clients continue to carry Ohio Stop Gap liability coverage.

What else do I need to know about Ohio Stop Gap coverage? 

You need to be cautious.  With RC § 2745.01 being upheld many standard carriers have opened up their underwriting guidelines and are accepting many risks they would not have a few years ago are reduced premiums. This sounds great if all Stop Gap forms were the same.  But they are not!

E&O Alert:  In moving stop gap coverage from one carrier to another. Please compare the coverage to make sure you are offering a comparable form.  If you are offering more restrictive coverage form, you need to inform your client and get them to sign off.  While many clients are thrilled by the reduction in premium, they need to be informed of the reduction in coverage to make sure they understand they are paying less money due to a reduction in coverage.  Many clients are already confused why they need Stop Gap coverage so do not add to the confusion by not spending time to educate them about the exposures and  potential coverage solutions.

What should I look for?

–         Coverage grant – Does the stop gap form provide coverage for “substantially certain to occur” claims?  Does it provide coverage for arising from intentional acts?  How broad is the coverage?

–         Exclusions – Be careful to go through each of the exclusions and compare them against the coverage they currently have.

–         Multiple forms with the same carrier – Many carriers use a different form when they add stop gap to a BOP form versus the one they attach to their general liability form.

So what is the bottom line? 

1. Most clients do not understand the stop gap exposure unless they have had a stop gap claim in the past. 

2. Since they don’t understand the exposure, they don’t understand what level of coverage they need to properly cover that exposure.  Does it really make a difference at claim time? 

3. Many insured’s and agents alike do not consider stop gap a “main” coverage so they do not spend much time discussing it.  Many stop gap claims are sizable and not having a broad coverage can be very costly.

Do right by your client and give the time and analysis to the stop gap exposure deserves.

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