Most people know the “joys” of commuting to work every day: high gasoline prices, traffic jams, pollution from auto exhaust, parking hassles, to name just a few. However, there are some very fortunate people who are free of these joys, and they are known as telecommuters.

Telecommuting is a business arrangement whereby an employer allows an employee to work at home, or some place other than the primary business location, and sometimes outside normally scheduled business workday hours. This has benefits for the employer and the employee alike. But it also has risk exposures that insureds need to consider and manage. Among these exposures are claims pertaining to workers' compensation and general liability insurance coverages.

The commercial general liability (CGL) coverage form of the insured employer considers employees to be insured for acts within the scope of their employment or while performing duties related to the conduct of the employer's business. It may very well be that the at-home employee has a customer come onto his premises to discuss a business deal, attend a sales presentation, or sign a contract. What happens if the employee's dog bites the customer? What if the customer trips over a box of files and falls in the home office area or while walking to the office area? What if the employee accidentally spills hot coffee onto the customer and the customer receives serious burns? The employee is responsible for the bodily injury suffered by the customer, and he was performing duties related to the employer's business, so will the CGL form apply to the claim filed by the customer?

There is no exclusion on the standard CGL form that would prevent coverage for such a claim, so the CGL insurer should pay the claim — no problems. On the other hand, consider this: The employee has premises liability coverage under his homeowner's policy, and the CGL insurer says the injury was not business-related. After all, what does the employee's dog have to do with the business? What if the file box contained family photo albums and was only in the office area temporarily? And what if the employee was serving the customer the coffee at the kitchen table after the business was concluded? The CGL insurer could raise coverage questions (or, at least, shared liability questions) that would only be answered at a trial, a trial that would cost defense expenses, liability payments, and a possible loss of future business from that disgruntled customer.

There is very little an insured employer can do if the insurer decides it wants to contest a claim. So, the better course for the insured would be to make sure there is adequate insurance coverage for a business-related claim that occurs at the telecommuter's home, and try to arrive at a pre-loss understanding among the parties involved — the insured, the insurer, and the employee — as to what is considered business-related activities covered by the CGL form. Such actions will not prevent every coverage dispute, but they will serve as good risk management tools.

CGL aside, the more complicated exposure when it comes to telecommuting is workers' compensation coverage.

In most jurisdictions, an injury is compensable under the state workers' compensation law only if the injury arises out of and occurs during the course of employment. This point usually presents no problem if the employee is present at his office, plant, or store. However, for a telecommuter working in his home, where is the dividing line between the course of employment and unrelated personal activities? Between arising out of the employment and arising out of some other non-work personal activity? For example, if an at-home employee stops writing in the middle of a report to answer the doorbell or to change a child's diaper, is the course of employment broken? If a telecommuter working at home accidentally slices his hand fixing lunch, did this injury arise out of the employment?

The answer is that old, time-worn response: It all depends on the facts of the particular situation. A carefully drafted telecommuting policy that is agreed upon by all parties involved (employer, employee, and workers' comp insurer) would go a long way towards preventing disputes over workers' compensation coverage. Subjects like specific work hours and telecommuting conduct, break periods and non-employee visitations, work areas on premises and leaving the premises (for example, to pick up some paper for the company printer) could all be part of the policy. Such an agreement would present strong evidence of the intentions and responsibilities of the parties.

Now, case law might also serve as a guidepost in trying to clarify the telecommuting/workers' compensation situation. There is not much case law on the subject and any court rulings are state-specific due to the nature of the workers' compensation system, but the following case from Tennessee does offer some help.

In Wait v. Travelers Indemnity Company of Illinois, 240 S.W. 220 (Tenn. 2007), a telecommuter sought workers' compensation benefits after a neighbor assaulted her while she was preparing lunch in her home, a home where she had an employer-approved office. The workers' compensation insurer denied coverage, claiming that the employee's injuries did not arise out of or occur in the course of employment. The Tennessee Supreme Court ruled that in all respects, the employee's home functioned as her work place. Her personal break for lunch was well within the course of employment since personal breaks and other incidental acts (such as drinking coffee, smoking, and seeking toilet facilities) are reasonable parts of an employee's work duties.

However, the Court continued, for a compensable injury to arise out of employment, it must emanate from a peculiar danger or risk inherent to the nature of the employment. In this particular incident, the assault was in no way connected to the employment. The assault did not occur because of any association the employee had with the employer. The employee was not attacked because she was an employee or because she was performing a job duty. The employee was not attacked because she was protecting the employer's property or otherwise advancing the employer's interests. The Court ruled that the facts in this case did not provide the required causal connection between the injury and the employment and so, while this injury did occur during the course of employment, it did not arise out of that employment. Workers' compensation benefits were denied.

Telecommuting is a work activity that will remain and probably grow in this information age, and knowledge of the risk exposures needs to grow along with that activity. This is knowledge that risk managers, insurers, and insureds should all seek.

David D. Thamann, JD, CPCU, ARM, is managing editor for the FC&S Bulletins.

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