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Reducing contractor workers comp claims.

In construction projects, many contractors use a contractor-controlled insurance program (CCIP) on the jobsite. These are consolidated insurance programs where the general contractor provides workers compensation insurance coverage for all or most subcontractors and the subcontractors' employees. This arrangement gives the general contractor assurance that there are no gaps in liability coverage and that the policy provides adequate limits should any workers compensation liability arise.

In most states, when the injured employee's actual employer--the subcontractor--has no workers compensation coverage, workers compensation laws consider the upstream contractor to be an injured employee's "statutory employer" (meaning the injured employee's employer by default). Therefore, if a subcontractor's employee is injured and the subcontractor's workers compensation coverage was not in effect due to a lapse in coverage or fraudulent proof of insurance, for example, the contractor could be liable for the employee's workers compensation benefits for weeks, months or even years after the alleged injury occurred.

An upstream contractor can defend against workers compensation liability by requiring adequate proof of coverage from the subcontractor. Unfortunately, it can be a daunting burden to prove that liability should not be transferred to the upstream contractor. Many questions may arise: When did the contractor receive proof of insurance? Was the proof of insurance adequate to prove the subcontractor was insured? Did the contractor follow up for additional proof of insurance in a timely fashion?

As a result, some contractors choose to provide a CCIP where all or some subcontractors on the job are not required to have individual insurance policies for their employees, and the contractor is automatically liable for workers compensation claims filed by the subcontractor's employees. The contractor receives a reduced price in the subcontractor's bid because it does not include the cost of insurance, allowing smaller subcontractors to join in the bidding.

In addition, the contractor can also rest assured it has proper insurance coverage for the jobsite should any accidents occur. Furthermore, this approach avoids the costs associated with litigating which policy is liable for the accident and whether the contractor is the statutory employer.

This arrangement also allows the contractor to be in control of the investigation the minute an accident occurs, so liability for the workers compensation injury can be minimized from the outset, rather than waiting until it is too late for any investigation.

On the other hand, there are risks for contractors who agree to provide coverage for workers compensation claims to their subcontractors. Defending a claim for an employee over which the contractor has little or no control can be difficult, as it requires assurances from the subcontractor. For example:

* Did the subcontractor check to see whether the injured employee had a history of bringing workers compensation claims, prior lawsuits, pre-existing conditions or work restrictions?

* Did the subcontractor require the employee to undergo a pre-placement physical and questionnaire ?

* Did the subcontractor inform employees of how to report an injury, where to seek medical treatment and when to fill out an injury statement?

* Did the subcontractor require the injured employee to take a drug test after the accident?

Contractors that decide to consolidate insurance with a subcontractor need to be prepared to assume the role as the immediate employer for all of the subcontractor's employees when it comes to work accidents. This automatically places the contractor as the injured employee's statutory employer.

Therefore, contractors should be advised that, by providing a CCIP, they are agreeing to provide workers compensation coverage--and therefore assure liability--for all of the subcontractor's employees. Thus, contractors must be in a position from the outset to fully defend the alleged injury and provide treatment per the state's workers compensation act.

In order to do so, the contractor must prepare before an injury occurs, continue to follow up throughout the life of a claim, and encourage the participation of the direct employer.

In order to reduce liability on CCIP claims, the contractor needs to have specific guidelines in place before any accident. This includes instructing all of the subcontractor's employees to report any incident immediately, to whom to report an accident (both during and after hours), where to seek initial medical treatment, what forms to complete and who will be investigating the alleged accident. The contractor should have template forms requesting information on the employee's prior medical treatment, medical provider and how the injury occurred. There should also be a form for any witnesses to complete, including full contact information and everything he or she knows about the alleged accident.

Contractors also need to remain involved throughout the life of the claim. This includes providing work within the employee's medical restrictions, making sure the employee has no unanswered questions about the workers compensation process and ensuring that the employee is receiving adequate medical treatment.

Finally, to help decrease liability for workers compensation claims, contractors should emphasize the importance of a subcontractor's involvement in the process, and the impact a lack of cooperation could have on future job opportunities. This may incentivize the subcontractor to help with the contractor's workers compensation liability goals.

Michael E. Chase and Ashley R. Kirkham are attorneys in the workplace law group at Turner Padget Graham & Laney, P.A.

An extended version of this article, along with guidance for risk management strategies, dealing with an injury and managing and closing a claim, is available online at RMmagazine.com.
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Title Annotation:Fore front
Author:Chase, Michael E.; Kirkham, Ashley R.
Publication:Risk Management
Geographic Code:1USA
Date:Nov 1, 2014
Words:885
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