I spoke to a manager at the South Carolina Workers Compensation Commission who advised that it would be rare for an injured owner of a subcontracting company to be successful in tapping into coverage under a general contractor’s Workers Compensation policy.  The injured owner would have to prove that he is an employee of the general contractor.  This may be difficult short of a situation where the general contractor is just calling the subcontractor an independent contractor to evade paying payroll taxes.

My advice to our builder clients is this:

It is best if the owner of the subcontracting company is covered under his own Workers Compensation policy.  It is very common for them to not be covered.  It is an acceptable risk in my opinion for the builder to accept a certificate of insurance showing that the owner is not covered.  It may be helpful for the builder to have a provision in his contract with the subcontractor to the effect that the subcontractor understands that he is not entitled to benefits under the builder’s Workers Compensation policy and that no premium has been deducted. 

Source:  John Sadler

The fact is that this is more complicated than it seems at first glance.  For purposes of determining the employee count, most state laws also count uncompensated officers as well as employees of sucontractors.  In addition, state laws count the total number of employees during an entire year, and not the average number of employees at any given time.

If an employer is required to carry Workers’ Compensation but does not do so, the injured worker can file his Workers’ Compensation claim with the state’s Uninsured Employer’s Fund and will get paid the traditional benefits.  The state’s Uninsured Employer’s Fund will then file a lien against the non-complying employer for the amount of the payout and can levy substantial fines against the employer in addition to the benefits.

 After I tell my client this, their next response is sometimes “Can’t I file the claim under my General Liability policy?”.  The answer to this is very simple – “No”, as these types of claims are excluded.