Insurance Gaps in a Staffing Agency You Just Bought

The gaps a new staffing agency owner should check first sit between the agency's contracts and its policies: endorsements a client requires but the policy lacks, employment practices wording that stops short of joint employer or wage claims, and claims-made dates that reset at closing. Public loss data does not rank them, so treat the list as questions to put to the broker before the first client audit or claim. It is for a buyer who has the seller's policies in hand.

The short answer

Injuries to your own placed workers generally belong to workers' compensation and employers liability, not general liability, though policy wording controls, so check that line first.
A client's insurance clauses are one place gaps can show: an alternate employer endorsement (it gives a scheduled client protection from claims by your own workers), a waiver of subrogation (the insurer gives up its right to recover from the client after paying a claim) or additional insured status may be missing from the inherited policy.
Employment practices, professional liability and cyber are usually claims-made: they respond to claims made while the policy is in force for work after its retroactive date (the earliest date of work it covers). A replacement policy that starts coverage on closing day can leave earlier placements uncovered.
For the core policy list, see what insurance a new staffing agency owner needs. This guide covers what falls outside it.

Which coverage gaps should a new staffing agency owner check?

A gap here is a question of fit for a new owner, not a sign that the seller's broker did poor work. Each row below pairs a gap with the way it surfaces in a staffing business and the first fix to ask for. Policy wording varies by carrier and form, so these are questions, not conclusions. The core policy list is in what insurance a new staffing agency owner needs.

Staffing agency coverage gaps, how to spot them and what to ask for
Gap	How it shows up	How to spot it	What to ask for
Client protection endorsements missing	A client's vendor packet asks for an alternate employer endorsement and a waiver of subrogation	Read the endorsement schedule, not the certificate	Endorsements added before the work order, or a clear contract answer
Employment practices wording too narrow, including wage and hour	A placed worker alleges harassment, or an overtime or off-the-clock claim names you and the client	Look for third-party, joint employer and wage and hour language, any exclusion, and any sublimit that pays defense costs only; policies differ	Wording that fits agency exposure, or a written explanation of the limits
Professional liability retroactive date resets	A client sues over a placement made before closing	Compare the new policy's retroactive date with the old one	Continuous retroactive date or a tail on the old policy
Crime coverage with a low social engineering sublimit	An email changes a client's wire details and payroll money leaves	Find the sublimit for fraudulent instructions and the conditions attached to it	A sublimit sized to your largest weekly transfer, and call-back controls
No cover for lost billing when a client closes	A client's plant burns and 150 placed workers stop earning	Business income usually needs direct damage at your own premises	Ask about dependent property or contingent business income wording
Payroll tax and audit bills assumed to be insured	The IRS sends a payroll tax notice, or a premium audit bills additional premium, for a period around the closing	Look for payroll tax filings and audit balances from before closing; insurance generally does not pay tax liabilities or premium audit balances	Ask deal counsel and the accountant who bears pre-closing tax and audit history, and budget for the audit. Under the federal trust fund recovery penalty (26 U.S.C. 6672), a person responsible for withheld payroll taxes who willfully fails to pay them over can be personally liable, so keep deposits current after closing
Client indemnity assumed under contract	A client agreement makes the agency responsible for losses tied to the client's own operations	Compare each indemnity clause with the general liability "insured contract" definition and with how the employers liability part of the workers' comp policy treats liability assumed by contract; ask the broker for a written answer	Have counsel read each existing client indemnity now, and any new one before you sign
Screening and background check errors	A client says a missed record led to a bad placement, or a worker disputes a background check	Professional liability may not define screening as a covered service	Ask how the policy treats screening and Fair Credit Reporting Act claims

Auto passenger wording and cyber record limits are in the core guide table: what insurance a new staffing agency owner needs.

Does general liability cover my temporary workers?

Mostly no, and the reason is useful. The standard Insurance Services Office (ISO) general liability form excludes bodily injury to an employee of the insured arising out of employment, whether the insured is liable as an employer or in any other capacity. Because the agency is generally the employer of the workers it places, their injuries go to workers' compensation and employers liability. The form has an exception for liability assumed in an "insured contract", and how that exception interacts with your comp policy depends on the wording and state law, so ask counsel before you sign a client indemnity.

The form also works the other way. It defines an "employee" to exclude a "temporary worker", meaning someone furnished to you to cover a leave or a short-term workload. So a client's own general liability policy does not automatically treat a worker you supplied as one of its insureds. It also means the client's own employer's liability exclusion does not by its terms apply to a claim by a temp you supplied. Whether that worker can sue the client at all depends on state workers' comp law, which is one reason clients ask for an alternate employer endorsement on your policy, and why the contract review matters. See the plain definitions at co-employment in staffing and whether general liability covers employee injuries.

Will work done before closing stay covered after I buy?

Employment practices liability insurance (EPLI), professional liability, also called errors and omissions insurance (E&O), cyber, fiduciary and directors and officers (D&O) policies are usually claims-made. They respond to claims made during the policy period for acts after the retroactive date, and they are not standardized. Staffing is a business where wage, discrimination, screening and data claims can surface long after the assignment ended, so the dates matter more than they do for a shop that sells a product. On the employment side, the Equal Employment Opportunity Commission (EEOC) said in non-binding 1997 guidance that a staffing firm and its client can both be a worker's employer for discrimination law, and that acting on a client's discriminatory assignment request is no defense. That is why wording on joint employer and third-party claims is worth reading.

A hypothetical example. In a stock purchase the company, and its past placements, now belongs to the buyer. The company's old E&O policy is cancelled when the sale closes and the buyer places a new one that starts on the closing date, with a retroactive date of the same day. Four months later a client sues the company over a placement made the year before. The new policy excludes acts before its retroactive date and the old policy has expired with no tail. The company's lender covenants now sit beside an uninsured $250,000 defense bill. Two steps may have preserved cover: a new policy that kept the old retroactive date, if the carrier agreed, or a tail on the old policy. If anyone knew of a possible client complaint, written notice of that circumstance to the old carrier before it ended could also have mattered. Whether any of these responds depends on the policy wording.

Read prior acts and tail coverage after an acquisition for the mechanics. Many claims-made policies have a change in control clause that can convert them to run-off after the sale, covering earlier acts but not new ones, so check each policy's wording and notice deadline.

What gaps come from where my workers are sent?

Two gaps come from the client site rather than your office.

Other states. A workers' comp policy lists the states where it applies. If your workers start reporting to a site across a state line, confirm coverage is in place there before the first shift. Four states (North Dakota, Ohio, Washington and Wyoming) sell workers' comp only through a state fund, with no private carriers, and their state fund policies generally do not include employers liability, so employers usually add stop gap coverage. Who must be covered varies by state.
Pollution. The standard general liability form has a pollution exclusion with narrow exceptions. Placements at chemical, waste or industrial sites make the question worth asking. It does not mean every agency needs a pollution policy.

Garagekeepers, liquor, product and inland marine coverage are not usually core to a staffing agency, so ask which exposure any such line in a quote answers.

How do I find these gaps in the first month?

Collect declarations pages, endorsement schedules and the full policy forms, not only certificates. A certificate of insurance is not the policy. See declarations page vs full policy and endorsements.
Make a list of every client contract and its insurance clause. Match each ask to a named endorsement.
Ask the carrier for the retroactive date and change-in-control wording on each claims-made policy.
Ask the broker for a written list of sublimits on crime and cyber and the states on the comp policy.
Check the exclusions that quietly narrow coverage. Exclusions that quietly kill coverage gives the common ones.
Match the result against the contracts guide, contracts, licenses and bonds for a staffing agency, and the payroll rules in workers' comp, payroll and class codes for a staffing agency.

A Morrow review can run this comparison on the documents you send and request quotes where a gap needs closing. Any new terms depend on carrier underwriting, and a quote is not coverage.

Keep reading

Frequently asked questions

What coverage gaps should a new staffing agency owner check first?

No public loss data ranks them, so treat the list as questions to ask. Ones worth checking are missing client endorsements, narrow employment practices wording, claims-made dates that restart at closing, low crime sublimits for fraudulent payment instructions and no cover for lost billing when a client closes.

Does EPLI cover wage and hour claims against a staffing agency?

Policies differ. Some may exclude wage and hour claims or limit what they pay, and third-party and joint employer wording varies. Read the policy and ask the carrier for a written answer.

What is an alternate employer endorsement?

It is a workers' compensation endorsement that gives a scheduled client, the business using your workers, protection as if it were an insured for claims by your own employees. Clients often ask for it. Availability and wording depend on the carrier and state.

Do I need tail coverage when I buy a staffing agency?

It depends on the structure and on whether the old claims-made policies end. Either a tail on the old policies or a new policy that keeps the old retroactive date can preserve cover for earlier work. Ask your broker and deal counsel.

Is a certificate of insurance proof that I have these endorsements?

No. A certificate summarizes coverage but does not change the policy. The endorsement schedule and the policy wording control what the carrier will pay.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

Insurance Gaps Hiding in the Staffing Agency You Just Bought