What If My Employer Did Not Carry Workers Compensation Insurance?
The Case of Subcontractors
Copyright 2010 Joseph A. Miller, Esquire and Joe Miller Law
We often come across situations, particularly in the construction business, or other forms of contracting such as landscaping, that when an employee of a subcontractor is injured on the job, we discover that their immediate employer, namely, the subcontractor, failed to carry workers compensation insurance.
Does that mean that the employee is out of luck and has no means of recovery? The answer is usually no. Under North Carolina law, the General contractor or subcontractor who hired or sub-letted out the job to the employer of the injured employee is required to obtain from that subcontractor/employer a certificate showing that the employer/subcontractor is carrying valid workers compensation insurance.
If the general contractor or other contractor who subletted out the work failed to ask for such a certificate at the time they subletted out that contract to the injured person’s employer, then the general contractor or other contractor who subletted out the work is going to be ultimately liable to pay workers compensation benefits to the injured worker, even though they are not their direct employer.
In other words, let’s take a simple example. Someone is a roofer, with A-1 Roofing Company, and they are severely injured at the construction site when they fall from the roof. A-1 Roofing Company, the injured party’s employer, was not directly hired by the owner of the property, but the roofing job was subletted out to them by the general contractor, Fat Cat Builders.
If, at the time they hired and contracted with A-1 Roofing Company, Fat Cat Builders failed to obtain a valid certificate of insurance from A-1 Roofing Company, then the injured roofer is going to go “upstream” to Fat Cat Builders, and their insurance carrier is going to be responsible to cover the injured roofer.
To be sure, if A-1 Roofing Company failed to carry Workers Compensation Insurance, and they had more than three employees, they are still going to be in trouble, the Industrial Commission is going to look to them for payment first. In addition, they may be charged with a crime and suffer fines and penalties for failure to carry workers compensation insurance; however, more likely than not, their financial condition will render them unable to pay for coverage, so the Commission will look “upstream” for payment from Fat Cat Builders’ Insurance Carrier.
What if there were more than one subcontractor, as is often the case? In other words, what if one of the subcontractors sublets another job to someone else? The answer is that he is also required to ask for a proper certificate of insurance from the subcontractor he is subletting to. If he fails to do so, then his workers compensation insurance is going to be liable for anyone hurt in the employ of the subcontractor that he hired.
In our example above, if A-1 Roofing Company was not, in fact hired directly by Fat Cat Builders, but was hired by B-1 Construction, and B-1 Construction was hired by Fat Cat Builders? Then in that case, the responsibility is still going to move “upstream,” depending on who failed to do what they were supposed to do. In this example, if the intermediate contractor, B-1 failed to obtain a proper certificate of insurance from A-1, then the insurance carrier for B-1, not the carrier for Fat Cat Builders, is going to be responsible.
The purpose of this law is obviously to protect workers from irresponsible uninsured subcontractors by imposing liability on the principal contractors or intermediate contractors. The idea is that a Principal Contractor is hopefully financially responsible enough to insist that each of their subcontractors carry valid workers compensation insurance. If they fail to insist on this, then they are going to be liable for anyone who is hurt on the job, even if they are not their direct employee.
The other main purpose of the law was to keep Principal Contractors from evading the law by hiring irresponsible subcontractors who do not carry workers compensation insurance, and relieving themselves of any liability under the act.
If you think about it, were it not for this law, we can envision a scenario where a principal contractor could simply subcontract out every single job on a construction site to irresponsible, uninsured subcontractors. In such a case, the principal contractor could, in fact, have hundreds of people who are technically working for him at that site, and no one injured on the job would be covered by workers compensation insurance. In such a case, were it not for this law, the Principle Contractor would have successfully escaped the requirement to carry proper coverage.
So, we see that with this law, unless the Principal Contractor or Intermediate Contractor protects himself by making sure each subcontractor they hire carries workers compensation insurance, then every single one of those employees on the job site who are “downstream” from them are going to be considered as if they were his employees, and they are going to be ultimately covered by his policy.
The big exception and loophole of this rule relates to Independent Contractors. Let’s say someone has a business, let’s say it is a power washing business. Let’s say they are the only employee and they buy a workers compensation policy which excludes themselves. Some folks call this a “ghost” policy. This is quite common, as the policy is relatively inexpensive, because it doesn’t cover anyone! The only purpose of the policy is to carry a certificate of insurance to provide to contractors when hired on a job.
If that power washer is then hired by a contractor and they then provide the contractor a certificate of insurance for their policy, the contractor has now gotten around the Act and does not have to provide workers compensation insurance for that power washer. If that individual is then hurt on the job, they have no coverage whatsoever.
The effect of this, particularly in a difficult economy, is that to the extent possible, contractors will hire solo independent contractors to perform various duties on a construction site or other job site. As long as each of those solo contractors have valid certificates of insurance (even though the policies cover no one), the general contractor has no obligation to cover those independent contractors, and if any of them are hurt on the job, they are out of luck.
Hopefully, the North Carolina Legislature will find a solution to close this unfair “gap” or “loophole” with respect to contractor/subcontractor situations.
The problem is that getting good compensation coverage is so expensive, that in a difficult economy, with construction orders way down, taking your chances and buying a “ghost policy” may be your only option to stay in business if you are an Independent Contractor.
Of course, if you can afford it, you should try to purchase a valid workers compensation policy that covers yourself and any and all of your employees, or make sure that it is explicitly made a part of your contract for the job that the principal contractor and his insurance carrier will provide all workers compensation coverage for you and your employees. Do not rely merely on the contract itself. You will need verification in writing from the contractor’s insurance company before beginning the job, that they are providing workers compensation coverage for you and your employees on that particular job, and you will need to maintain that documentation in a safe place.
As far as your own policy, as it stands now, you are not going to be able to rely on the “ghost policy” to cover you or anyone who works with you if you are injured on the job.
In any event, if you have been injured on the job on a construction site and you are not sure if there was appropriate coverage, either through your direct employer, the general contractor, or elsewhere, please contact our firm, as we may be able to assist you. You may contact Mr. Miller directly at his private e-mail at email@example.com.
You can also call us toll free at 888-694-1671.