Comp in Connecticut: General Contractors on the Hook for Subs
Sole proprietors and independent contractors are a perpetual conundrum for workers comp. State regulators have struggled with the fundamental issue: are they in or out, covered or not? In most states, coverage for a sole proprietor is optional; given the high cost of coverage in the building trades, most opt out. However, when sole proprietors work for general contractors - as they often do - the opt-out option may disappear. In the audit process, the GC must be able to prove that all workers on the job are protected by workers comp. As became evident in the recent Connecticut case of National Fire Insurance versus Beaulieu Company LLC, certificates of insurance failed to protect the GC from the comp liability of its subcontractors.
Beaulieu Company LLC is a commercial roofer. When busy, they hire subcontractors, a number of whom are sole proprietors. The company is in the Connecticut assigned risk pool with an annual premium just under $50,000. However, the premium auditor for National Fire Insurance (CNA) identified four subcontractors - mostly sole proprietors - with no demonstrable workers comp coverage: the certificates of insurance either had the wrong dates or failed to specify who was covered. The bill for additional premium - a whopping $46,000 - has been upheld by two levels of the court system.
Statute versus Policy
The auditor invoked Part Five C 2 of the policy, which reads in part: "All other persons engaged in work that could make us liable under Part One (Workers Compensation Insurance) of this policy...This paragraph 2 will not apply if you give us proof that the employers of these persons lawfully secured their workers compensation obligations." Uninsured subcontractors who are injured might be covered by the GC's policy; hence, premium on these subs is owed to the carrier. [Two items worth noting: first, roofers carry among the highest rates for comp coverage, as high as $50 per $100 of payroll, so there is a lot at stake in these confrontations; second, even though the carrier may collect premiums on the subcontractors, their first inclination would likely be to deny their claims.
By law, sole proprietors are not required to carry workers comp. However, GCs may be liable for claims from these individuals. Hence, policy trumps law and the company must pay the extra premiums. In Beaulieu's case, premiums double due to the high cost of coverage.
This case would never have been disputed in Massachusetts: because the GC and the subs were both in the roofing trade, the employee(s) of the sub would by definition be considered employees of the GC, unless the sub carried a workers comp policy that explicitly covered all employees, including a sole proprietor owner.
The Bottom Line: GCs in Connecticut should assume they will be responsible for the comp premiums of any subcontractors who lack explicit coverage, whether the latter are required to carry insurance or not.