What Accounts for Different Payouts Under the Same “24-Hour Extension Clause”?
A judge has pointed out that the supplementary “24-Hour Extension Clause” often added to employer liability insurance does not provide comprehensive 24-hour coverage; instead, the insurance scope depends on the specific terms outlined in the policy.
**Key Takeaway**
When businesses purchase employer liability insurance, they frequently add the “24-Hour Extension Clause,” extending coverage beyond regular working hours to include incidents that occur at any time. Many employers and employees believe that with this clause in place, they can secure compensation for accidents that occur outside standard work hours. But is the “24-Hour Extension Clause” really a foolproof safety net?
Recently, the Shanghai Financial Court presided over two similar cases that demonstrated how seemingly identical policies could lead to very different judicial outcomes, driven by specific wording differences.
**”Same Clause, Different Payouts?”**
Employer liability insurance offers protection against accidents leading to disability or death that an employee may suffer while performing work-related tasks, thus mitigating employment risks for businesses. The introduction of the “24-Hour Extension Clause,” which extends coverage to all hours of the day, has made it quite popular among companies.
In two cases, a machinery company and a service company both insured with the same provider under employer liability insurance and the “24-Hour Extension Clause.” After a tragic incident involving an employee who suffered injuries on their commute, the cases prompted insurance claims. Ultimately, the court delivered two markedly different verdicts: the insurer was not liable to compensate the machinery company, whereas it was responsible for compensating the heirs of the deceased service employee, Wu, with a payout of 1 million yuan.
Why would the wording yield such different results? The answer lies in the circumstances surrounding the incidents.
The machinery company employee, Gu, had an accident on his electric bicycle due to potholes in the road while commuting home, sustaining injuries. On the other hand, service company employee Wu collided with a guardrail and a curb while riding to work for a night shift, tragically dying while being transported to the hospital. After the incident, the service company issued a “Rights Transfer Letter” to pass on the claim rights to Wu’s heirs.
Both the machinery company and Wu’s heirs subsequently filed claims with the insurer, but both were denied and took their disputes to court.
Both parties argued that the accidents should be covered by the terms of the “24-Hour Extension Clause” and that the insurer should be liable for compensation. The insurance company countered that while the “24-Hour Extension Clause” expands the coverage time frame, the coverage still hinges on the employer’s legal responsibility to compensate the employee. Since both accidents occurred on their commutes, they did not qualify as work-related injuries, thus lacking the legal premise needed to trigger the clause, leaving neither Gu nor Wu entitled to any compensation.
**Dissecting the “24-Hour Extension Clause”**
According to Judge Zhou Jing, the main difference between the two cases lies in the specific wording of the “24-Hour Extension Clause.”
The machinery company’s clause read: “This insurance extends coverage for the insured’s employees in the event of injuries within 24 hours before or after employment, for which the insured is legally liable to compensate.” Conversely, the service company’s clause stated: “From the start of the policy period, the employer liability coverage extends to personal accidents; if an employee suffers injury or death due to an accident, the insurer will compensate the insured up to the limits specified in the policy.”
Judge Zhou noted that the machinery company’s clause included a stipulation regarding the employer’s legal obligation to provide compensation, creating a prerequisite for any claims. Whether the employer has this duty during off-hours needs to be evaluated case by case.
In Gu’s scenario, his accident while cycling home was not linked to any prior exigency from his employer that would categorize it as a work-related injury; thus, the machinery company bore no legal obligation to compensate him, absolving the insurer from liability.
On the contrary, the service company’s clause explicitly accounted for personal accidents, easing the requirement for the employer to have a legally defined responsibility to pay. Wu’s collision and subsequent death fell under the scope of the “24-Hour Extension Clause,” and the insurer was thus obliged to fulfill its compensation responsibilities.
**Employer Liability is Paramount**
Given these insights, Judge Zhou emphasized the need for businesses to closely scrutinize the actual wording of their policies instead of merely reading the clause titles.
He indicated that the obligation of indemnity in employer liability insurance only exists when the employer is found at fault. The insurer is only responsible for compensating the actual losses incurred by the employer when they legally owe compensation for employees’ injuries or property damage.
It’s crucial for companies seeking the added “24-Hour Extension Clause” to understand that it does not equate to comprehensive 24-hour coverage. Instead, the insurance liabilities should be evaluated according to the terms outlined within the clause. In practice, most “24-Hour Extension Clauses” still hinge on the conditions for indemnity established in the primary insurance policy.
Moreover, as the “24-Hour Extension Clause” is not legally regarded as an exemption clause, insurers are not required to provide specific warnings or clarifications about its meaning during the underwriting process. This often leads to misunderstandings on the part of businesses.
Judge Zhou advises that, as the primary party responsible for their employees, businesses should carefully assess the terms of various supplemental insurance products, recognize the extent of coverage, and make informed choices to avoid unnecessary legal disputes.
