Insurance Journal Forums

I am working on E&O for a mortgage pro who is a "statutory W2 employee". I am in the process of procuring his employer's E&O policy to review and determine how it will or will not protect my client in a claims scenario. Hopefully I can determine how much, if any, and what type of E&O coverage to purchase by reviewing this policy.

IS the fact that my client is a statutory employee an issue? My understanding of this tax status is that my client is both an employee - but has some advantages of being a contractor?

I admit, this may be better suited for a CPA's forum - but I thought I would throw it out there in case any E&O pros care to share whether or not it is an issue I need to be paying much attention to.

Thanks!

Im not sure I understand your question.

If you are concerned with who is an insured - look to the definitions section / or the first section that often defines "you."

The definition of wrongful act is always important with E&O as are the exclusions.

Again, not sure this helps.

There are conversations constantly going on about the difference between an Employee and an Independent Contractor. If you looked at two different companies and the only difference is how the worker gets paid, would the workers be considered employees? this is the big debate. Look on the IRS website. It gives you guidance as to how a worker would be classified.
As far as the policy is concerned, the previous answer gave you good advise. Look at the policy under who is an insured.

Many employers and employees think that the satus of the employee/subcontractor is determined by whether the employee/subcontractor is paid on a 1099 or a W2 basis. That is not the case in many instances. Even though an individual is paid on a 1099 basis, there are other legal tests which may indicate that the "subcontractor" is a "statutory employee." It may vary from state to state. An attorney that is familiar with employment issues may be the best source of information in that regard.

I should have given an update last week.

Thank you all very much for posting. Last week I spoke with a CPA and I reviewed the current policy along with the proposed policy. The CPA's position is that the "statutory" employee is technically an employee of the firm - who enjoys some benefits of a 1099 contractor (tax write offs/expenses etc.). So for purposes of policy analysis, if the policy extends coverage to employees then even a "statutory" employee would have the benefit of coverage. If the policy excludes coverage for contractors then an insured ought to be wary of how he utlizes contractors.

The current policy and the proposed policy both extend coverage to the insured's employees AND hired independent contractors - so what turned out to be an imagined dilemna has been resolved.

Thanks again for posting - if you all have anything to add I would love to read it.