Contractor Workers’ Comp and Insurance Requirements for Condos and HOAs

I wanted to talk a bit this week about protecting your association when you have contractors or vendors on the property.  There’s a lot of confusion in this area, especially when it comes to workers’ compensation insurance.  What proof of insurance should your association require of any contractor who works on the property?  Remember, rules that might work for you at a personal, home level do not necessarily work when you are concerned about protecting a large corporation.

First, and I hope this doesn’t come as a surprise to anyone, you should never hire any contractor who does not carry insurance.  A contractor’s lack of insurance is a guarantee that, if and when something goes wrong, that liability will fall on the association.  Instead, every single vendor who works on your property should be required to not only carry insurance (a million dollar liability policy is the gold standard, but the exact amount required should be determined by your local laws, your documents and prudent board policy depending on the size of your community and the scope of work involved), but also both the association and the management company should be listed as “additional insureds” on the contractors policy.  Additional insureds are those people who, despite not owning the policy, are protected if something goes wrong.  Now, this kind of protection isn’t hard for the contractors to get–it’s a simple as them calling their own insurance agent and asking for the two parties to be listed as additional insureds, and then providing copies of those certifications.

The more complex issue involves workers’ compensation insurance.  Workers’ compensation is an insurance program governed by state laws that mandate that certain employers carry insurance to protect workers if they are injured on the job.  Workers’ comp provides injured employees with wage protection and medical benefits, and in exchange for that the worker is precluded from suing their employer for negligence.  If you work for someone, you are probably covered by workers’ compensation.  Each state’s law varies a bit, but it is typically required that most employers carry workers’ compensation insurance.  In return, employees are precluded from suing their employer if they get injured–they must collect from the workers’ comp policy.

The very important quirk in workers’ compensation, at least as far as shared ownership communities are concerned, involves workers’ compensation exemptions.  Certain businesses, especially small businesses and independent contractors, are exempt from state requirements that they carry workers’ comp.  The important thing to understand, however, is that these exemptions are not protections for employers, clients or workers–they are simply rules that say that certain employers do not need to carry the insurance.

Now, there is a cost associated with workers’ compensation.  And so you’ll often find that small vendors and independent contractors are able to provide your association with cheaper bids on contracts, simply because they do not have to absorb the cost of the insurance.  But what does that mean for your community?

What it means is that, if you hire a vendor that does not carry workers’ compensation, and one of their employees is injured on their property, that worker is going to sue the association for damages.  So that lawsuit, and the increased insurance premiums that result, goes directly onto the association’s own liability insurance.  Basically, if you hire a vendor that does not carry workers’ compensation, you are saying that the reduced cost of the contract is worth increased liability for the association.  And honestly, it almost never is.  If your association gets sued, and if you have to refer that lawsuit to your insurance carrier, you can guarantee that your premiums for the next year will rise, and that it will create an ongoing issue for the association.  But if you instead had hired a contractor that carried the insurance, that injured worker would have been precluded from suing the association for negligence.  That’s why workers’ comp is so important.

So again, when you are considering vendors for your community, having a workers’ comp exemption does not mean that the association is protected in any way–it simply means that that employer is not mandated by the state to carry insurance.  But, as a responsible corporation, you should still insist that the association only hire vendors who carry the insurance, or understand that any accidents or problems that occur will go directly onto your liability policy.  My recommendation to associations is that they should always hire contractors who not only carry significant liability policies, and insist that they be named as additional insureds on that policy, but also that they should reject any vendors who do not carry workers’ compensation insurance, whether or not that vendor is exempt from state requirements to carry it.  The association’s concern is not whether or not the state requires insurance–it’s whether the vendor is actually insured.  Insist that you vendors all carry both types of insurance, and you will help to protect your association against costly and unnecessary lawsuits.

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