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Nanny Insurance Issues


There are many common insurance problems for a nanny and her family. These fall into three categories: (1) workers' compensation; (2) automobile; and (3) general liability. The solutions to these problems is the same; have the right kind and amount of insurance. However, insurance can be confusing and insurance companies are very precise when it comes to what is covered and when. Each state has its own laws, so you should check with a local lawyer for specific advice.

What is insurance?

Insurance is a contract between the person who buys it and the insurance company that sells it. The buyer, called the "named insured," agrees to pay a certain amount of money, called the "premium." In exchange for the premium, the insurance company or "insurer" agrees to pay for certain types of claims and losses, called "coverage," up to a particular amount, called the "coverage limit." First party or "personal insurance" policies, such as health insurance and disability insurance, pay the named insured for his or her own injury. Third party or "liability insurance" policies, such as automobile insurance and homeowner's insurance, pay persons to whom the named insured is liable, because she injured them. An insurance policy will only pay up to the coverage limit. Usually the limit can be as little as $5,000 or as much as $500,000. After that, there is an "umbrella policy" with a coverage limit of $1 million or more. An Insurer determines whether it will write and insurance policy and the amount of the premium it will charge on the probability that it will have to pay a claim and how big it will be. Therefore, any incorrect or false information on the application form can be used by the insurer as an excuse for canceling the policy or refusing to pay the claim.

Workers' Compensation

Workers' compensation insurance provides coverage for employees for injuries which are caused by or have to do with their job. In most states, a nanny is considered an employee. If a nanny is hurt while working for a family and they have workers' compensation insurance, it will pay the nanny's medical expenses and wages while she is disabled. If the family does not have workers' compensation insurance and they live in a state which requires it, then the family will have to pay, even though the injury was not their fault. A second benefit from having workers' compensation insurance is that it protects the family from any claim for personal injury by the nanny, if the injury is due to the fault of one of the family members. For example, if the nanny falls down the stairs and breaks her leg, because their was a piece of torn carpet the family never got around to having replaced, it would be no different than if the nanny was a visitor in the family's home. She could bring a civil suit against the family for her pain and suffering. If the family had workers' compensation insurance, then the nanny could not sue them and would be limited to the payment of her medical expenses and lost wages.

Sometimes, a family tries to be creative by calling their nanny an "independent contractor." An independent contractor is someone who works by herself for a fee. A licensed day care provider who takes children into her home is an independent contractor. A nanny is not. Families also try to be creative by pretending that the nanny is employed by their business. This presents two problems. First, it is insurance fraud and second, only the business employer is protected from a civil suit by the injured nanny, so the family could be sued by the nanny or the workers' compensation insurer for the benefits it has paid to the nanny, if the nanny's injury was due to a family member's negligence. Workers' compensation insurance for a single household worker, such as a nanny, is relatively inexpensive and knowing that there is coverage for any work-related injury is a good investment in peace-of-mind for both the family and the nanny.

Health Insurance

Usually, it is easy to determine when an injury is work-related. But what about a nanny who gets chicken pox from one of the children? Or a nanny who cuts her hand while making dinner for herself? When the nanny goes to the doctor or the hospital, the first question that she will be asked is, "Who is your health insurer?" If she has none, the next question is "Who will guarantee payment?" The way to avoid this gap in coverage and any unpleasant controversy over who is responsible for payment is to purchase a nanny health insurance policy. These unique policies can provide short term, basic health coverage much less expensively that traditional health plans and are available from specialized health insurance agents. (About Nanny Health Insurance)

Automobile Insurance

Automobile insurance provides coverage for family members who cause injury or property damage while driving an automobile. Automobile accidents are probably the most common type of claim against a nanny and her family, so it is important to understand what and who is covered. In most states, an automobile insurance policy covers a particular automobile or any other automobile which is operated by the named insured or members of the named insured's family. Unfortunately, there are many exclusions and exceptions. A nanny is probably covered while she is driving the family's automobile, but to be safe, the family should add the nanny to the policy as an additional insured. This is particularly important in those states where there is an extra premium for young drivers and the nanny is under that age.

Since a nanny is not a family member, she is not covered by the family's automobile insurance while she is driving her own car. This can be a problem, if the nanny is in an accident while driving on family business. The law considers an employer to be liable for an injury caused by an employee while doing their work. This is called "vicarious liability." The family's automobile insurance will not cover vicarious liability and the family can be held personally responsible for paying any damages that are more than the nanny's coverage limits. Therefore, either the family should not let the nanny use her own car while she is working or, if she will be using her own car, the family should make sure that the nanny has or buy her coverage limits at least equal to the coverage limits on the family's automobile.

Another concern is whether the nanny is driving her own automobile as part of her business. If so, then the nanny's own automobile insurance may not provide coverages. Automobiles that are used in a business are assumed to be on the road more and therefore they are more likely to be in accidents, so an automobile insurance policy that provides coverage for business use has a higher premium. A nanny who regularly drives family members as part of her duties may find that this is considered a business use and that she has no coverage for an accident that occurs while she is working, especially if providing transportation is part of her contract or she is paid extra for the use of her car or is reimbursed for gas or mileage. In order to be safe, the nanny should check with her insurance agent about including business use in her automobile insurance policy, as the premium difference, if there even is one, usually is not very much.

General Liability Insurance

Homeowner's insurance provides coverage for injuries to people visiting the family's property or caused by a family member. It will not cover the nanny, but it may cover the family, if the claim is based on the family's negligence in selecting, training or supervising the nanny. It probably will not cover the family for vicarious liability as employer of the nanny. Most nannies have very little personal assets, so, as a practical matter, there is no point in suing them. However, if the family has substantial assets, then it is an attractive target for a law suit. To protect itself, the family either needs to find some type of liability insurance that will cover them as an "employer" or avoid having the nanny care or be responsible for non-family members.

In summary, when it comes to nanny insurance, it is very important to know what is covered, who is covered and how much coverage you have. This can only be done by carefully reading the policy and the "coverage selection page" or "declaration sheet" which comes with it and by checking with an insurance agent, if you have any questions or concerns.

John N. Lewis, Esq, is a senior partner in the Boston, Massachusetts, law firm of Ravech, Aronson, Shuman & Lewis, P.C. and specializes in personal injury and workers compensation law. He may be contacted at 1-800-353-4080. Reprinted from Nanitax Tips Newsletter Spring 1996 (A Home/Work Solutions Publication)