Compulsory employer liability insurance and the risks faced by the large groups of companies

All employers in accordance with the provisions of the Employer’s Liability (Compulsory Insurance) Law of 1989 must have employer’s liability insurance coverage. General insurance companies offer the coverage required by law, often in combination with various extensions.

Under the Laws of Cyprus there are 3 categories of people who can perform work for remuneration for the benefit of a company or a physical person:

  1. Employees are people who work for an employer either on a permanent basis or for a specified period of time, whether full-time or part-time. The employer in this case must be covered by employer liability insurance coverage.
  2. People who offer their services under a service contract are not employees and therefore no employer liability insurance is required as there is no employer / employee relationship.
  3. The third category which is encountered more rarely and it is mentioned for the sake of completeness is the employment of an employee who comes from a temporary employment agency (TEA) in accordance with the provisions of Law 174 (1) / 2012. Under this legislation, specially established companies have the right to temporarily provide staff to other companies. In these cases, according to Αrticle 13 (1) of the Law, the responsibility for insurance lies with the TEA and not with the temporary employer.

If an individual offers his services under a service contract or if there is an employer / employee relationship, it is not decided through an agreement between them but is examined on the basis of true facts. The Supreme Court in the case of the Attorney General of the Republic Stavros Stylianos et al. (2002) 1 AAD 1718 ruled, inter alia, that the following should be considered:

  • Who controls the method of performing the work.
  • Who has the power to select employees.
  • Who pays the salary.
  • Who has the right to fire
  • Who owns the tools and equipment used in the work.
  • If there is a possibility of profit or risk to bear the loss of the person performing the work.

The above should not be cumulative in order to decide the employment status of an employee, however, as stated by the Court, special emphasis is given to who chooses the method of performing the work.

The difference between a service provider and an employer / employee relationship is something that must be considered very carefully before concluding a new employer liability insurance policy, as any wrong choice of employer can lead to coverage gaps.

The Insurable interest is a necessary component in order to have a valid insurance agreement. The policyholder must have an interest in the insured object or person. Otherwise, the insurance would result in a kind of bet, increasing the incentives for insurance fraud. As far as the employment is concerned, only the actual employer can have an insurable interest and any other insurance is considered invalid.

The subject matter in the Appeals with no. 22/2008 and 23/2008 was an accident at work of a worker and the companies involved were the parent contractor company and its subsidiary company which undertook specific subcontracting. The parent company paid the salary and was insured with employer liability insurance for the specific employee, who nevertheless was engaged in work performed by the subsidiary. When the employee was injured, the subsidiary was not covered by employer liability insurance. The Supreme Court ruled that the real employer was the subsidiary company and therefore the insurance company was not obliged to cover the injuries of the employee under the employer’s liability insurance contract which it had entered into with the parent company.

In light of the above and given that in large groups of companies the employees who staff them are often transferred permanently or temporarily from one group company to another, it is vital that this change of employer is reflected in the insurance policies of the employer. Otherwise, employers may be exposed and without the necessary coverage, but insurance companies even if they intend to meet a claim will not have any legal background to justify it and any amount paid ex-gratia may be taxable since it will go beyond the sphere of compensation.

Author: Christos Th. Tryfonos