Your client hires a babysitter for the night, a chef for a dinner party or a gardener for a weekend. Do they understand their potential liability?
Many families form close relationships with their household employees, which makes having a conversation about coverage for domestic staff awkward and difficult to initiate. But the potential liabilities are too big to go unnoticed—and they don’t just apply to high net-worth homeowners. Anyone who hires in-home staff like nannies, butlers, chefs, housekeepers, gardeners, home health care workers and tutors all face liability.
“When an insurer looks at their risks, they think about if their house is insured properly or if they have auto covered, but they’re not realizing that they need to be aware of these additional areas that require liability insurance” says Julie Sherlock, vice president and national underwriting manager at ACE Private Risk Services. “Anybody who looks to employ somebody that’s going to have any type of exposure to their personal possessions, and/or their family, should look into coverage.”
A March 2012 whitepaper published by ACE reported that while 54% of high net-worth survey respondents employed domestic staff, 31% did not have appropriate employment practices liability coverage (EPLI) despite a high level of concern about being sued by an employee for injury on their property. Risks include injuries on the job through car accidents, criminal behavior such as identity theft or kidnapping and lawsuits for wrongful termination, sexual harassment or discrimination.
But protection and risk management practices can start before work even begins for both domestic contractors like nannies and one-time chefs and domestic employees who work on a regular basis multiple days a week. To minimize risks of employing household staff, Sherlock offers five tips to share with your homeowners clients:
- Check references. You find out who people are through word of mouth and through friend recommendations, but you still want to be sure you know exactly who you’re employing.
- Do a professional background screening. Look at criminal records, verify references, view credit reports and check motor vehicle reports.
- Do another professional background screening. If you’re hiring somebody for a short time, completing one background check is fine. But if you’re bringing somebody on long-term, make sure you’re checking their reports at least every other year.
- Maintain a clear employment contract. Outline responsibilities, payment terms, requirements and causes for termination. Be clear on what employees can and can’t do, or what they can and can’t be fired for—this will hopefully minimize the potential for a wrongful termination lawsuit down the road.
- Review that process on that a regular basis.
When first discussing domestic staff coverage with a homeowners client, Bill Burbine, vice president and personal lines manager at Fred C. Church, Inc., suggests gaining a general understanding of what protection measures they’ve already taken and then educating them on best practices. “In the initial risk assessment, talk about employment relationships they have from part-time handy work to full-time domestic staff and then seek to understand what they’ve done in the past to document and protect themselves,” he says.
Although potential liabilities can fall under general property, homeowners and auto policies, added EPLI and workers comp coverages might also be useful. (Note that EPLI does not apply to domestic contractors such as babysitters or one-time chefs.) For these additional coverages, David Wall, vice president at Mississippi-based SouthGroup, suggests looking at state regulations about whether workers comp for domestic employees is required or available—and then closely reviewing the language on ISO forms for bodily injury coverage. For EPLI, “most of the markets I’ve seen thus far will limit that endorsement as a limit to the policy,” Wall says, noting that some carriers provide coverage for up to five residential staff members based on seniority.
According to Sherlock, who advises gaining insight into a client’s lifestyle in order to help mitigate potential exposures, “when talking about liability in general, you really want to look to understand not just the value of what your tangible assets are but investable assets as well.” Veiled coverages include crisis reputation coverage—used to mitigate name and reputation damage for clients in the public eye—or counsel shadow defense cover—used for personal attorneys to shadow the insurance company’s attorney.
Underestimating the potential of a liability lawsuit from a domestic employee and misunderstanding affordability of effective protection can be irreparable. Says Burbine: “This is an opportunity for independent agents to differentiate themselves, reinforcing the independent agent model and providing value to their clients by bringing these exposures to the table.”