New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on September 29, 2000, representing the position of the New York State Insurance Department.

RE: Workers’ Compensation Law Election to Exclude Executive Officers from Coverage

Question Presented:

Is an executive officer entitled to be covered under the employers’ liability insurance portion of a Workers’ Compensation and Employers’ Liability policy after electing to be excluded from the compensation insurance contract pursuant to N.Y. Work. Comp. Law § 54 (6) (d) (McKinney 1994)?

Conclusion:

An executive officer is not entitled to be covered under the employers’ liability insurance portion of a Workers’ Compensation and Employers’ Liability policy after electing to be excluded from the compensation insurance contract pursuant to N.Y. Work. Comp. Law § 54 (6) (d) (McKinney 1994).

Facts:

The Department received copies of a Workers’ Compensation and Employers’ Liability Insurance policy, the endorsement thereon acknowledging the insured’s election to exclude two executive officers from coverage, and the signed notice of election to effect such exclusion pursuant to Section 54, subdivision 6 (d) of the New York Workers’ Compensation Law. The sender inquired whether the N.Y. Work. Comp. Law § 54 (6) (d) (McKinney 1994) election to exclude executive officers from coverage pertains only to the workers’ compensation insurance portion of the Workers’ Compensation and Employers’ Liability Insurance policy or to the entire policy.

Analysis:

N.Y. Work. Comp. Law § 54 (4) (McKinney 1994) provides as follows:

Limitation of indemnity agreements. Every contract or agreement of an employer the purpose of which is to indemnify him from loss or damage on account of the injury of an employee by accidental means, or on account of the negligence of such employer or his officer, agent or servant, shall be absolutely void unless it shall also cover liability for the payment of the compensation and for the payment into the special funds provided for by this chapter. Every such contract or agreement of insurance issued by an insurance carrier covering the liability of an employer for the payment of the compensation and for the payment into the special funds provided by this chapter shall be deemed to include all employees of the employer employed at or in connection with the business of the employer carried on, maintained, or operated at the location or locations set forth in such contract or agreement and employees for whose injuries a contractor may become liable under the provisions of section fifty-six of this chapter. Any employee or employees or class of employees not enumerated in section three, subdivision one, group one to seventeen inclusive, of this chapter, employed by a municipal corporation or political subdivision of the state, may by the terms of the contract or agreement be expressly excluded therefrom.

Thus, pursuant to WCL § 54 (4), no contract of insurance may provide coverage for employers’ liability insurance if it does not also provide coverage for workers’ compensation insurance. (However, the Insurance Department may approve forms for monoline employers’ liability insurance that insure only employees who are not subject to the New York Workers’ Compensation Law: for example, employees subject to the Federal Employees Liability Act.) On that basis, we must conclude that an election to exclude an officer from coverage pursuant to N.Y. Work. Comp. Law § 54 (6) (d) (McKinney 1994) must necessarily exclude coverage of such officer from the entire policy and not just a portion thereof.

The court in Continental Ins. Co. v. Estate of Benton, 896 F. Supp. 272 (N.D.N.Y. 1995) took a different approach at resolving a similar question, but ultimately reached the same conclusion. In Continental, a sole proprietor failed to actively elect to be included in his company’s workers’ compensation and employers’ liability insurance policy. Under the Workers’ Compensation Law, a sole proprietor is not automatically included in the compensation insurance contract and must affirmatively elect to be included, pursuant to WCL § 54 (8), in order to be insured thereby. Continental held that for an injured person to be covered under a compensation insurance policy, that person must be an employee, as defined by the Workers’ Compensation Law. The Court stated that while the sole proprietor may have fit the definition of an employee under the definition section of the Workers’ Compensation Law, WCL § 2 (4), the opt-in requirement of WCL § 54 (8) negated such status. The court determined that the sole proprietor was not covered under the workers’ compensation insurance portion of the policy. Additionally, the sole proprietor was not covered under the employers’ liability insurance portion of the policy because, under this coverage part, coverage applies only to employees. Thus, the court applied the Workers’ Compensation Law definition of an employee, as the court interpreted such definition, to apply to the entire policy.

By analogy, if a sole proprietor is not an employee because he/she does not "opt-in" for coverage under WCL § 54 (8), two officers who have "opted-out" of coverage pursuant to WCL § 54 (6) (d) are not employees as defined by the Workers’ Compensation Law. And, as the Continental court held, if a person is not an employee as defined by the Workers’ Compensation Law, he/she is not an employee for either the workers’ compensation insurance portion of the policy or the employers’ liability insurance portion of the policy.

The opt-out provision contained in WCL § 54 (6) (d), allowing two executive officers to elect to be excluded from coverage, was enacted in 1986. Gladys Carrion, then General Counsel to the New York State Workers’ Compensation Board, described the purpose of the legislation in a letter contained in the 1986 Bill Jacket for Chapter 446 as being to remove the "unneccessary and undesired financial burden" imposed on small businesses. "The officer/shareholders of a two-person corporation do not need the kind of protection that is provided by mandatory coverage laws. The Workers’ Compensation Law was enacted for the protection of employees. The officers of a two-person corporation are not really employees, but more closely resemble partners or employers." Thus, the intended affect of WCL § 54 (6) (d) was to treat executive officers that opted-out, per § 54 (6) (d) provisions, as employers and not employees.

For further information you may contact Attorney Sally A. Geisel at the New York City Office.