ASSOCIATION TIMES
February 2009

INSURANCE QUESTION OF THE WEEK:

“Our Association’s insurance broker is insisting that we maintain a workers’ compensation policy.   We’re not an employer, at least I don’t think we are.  We do have a handyman, but we consider him an independent contractor.   I just don’t think it’s necessary, is it?  I mean we carry general liability coverage and D&O protection.   Surely that’s enough?”

-Frances M., Woodland Hills,, CA
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Frances,

There are two things (which you likely already know):   First, California Law (California Labor Code, Section 3600.a) requires ALL employers to maintain Workers’ Compensation insurance; and, secondly -- nearly every set of CC&Rs requires a Board of a common interest development to purchase Workers’ Compensation coverage “to the extent necessary to comply with applicable law.”  

But of course the real question is:   Under what circumstances could the Association be deemed to be an employer?

Believe or not, there are a multitude of ways.   For example, if the association hires a contractor who does not carry Workers’ Compensation insurance, even if the contractor represented that he had coverage (but didn’t), the Association can still be deemed the employer as far as injury is concerned.  In fact, a contract which was entered into for the purposes of avoiding workers’ compensation is not enforceable.

Handymen are particularly a troublesome area.  They rarely maintain their own workers’ compensation insurance and if they should be injured while performing a task for which a California contractors license is required, they are automatically deemed to be the Association’s employee at the time of injury.  Handymen are also problematic because they typically are working without the benefit of a contract.  The right to control the means and manner of performance, being paid by the job, not by the hour, the furnishing of one’s own tools, equipment and supplies – these are all factors in defining an independent contractor relationship. If the Association pays the handyman by the hour, supplies the materials, tools and, worse yet, specific directions of how the Board may wish the task to be completed – they may well have inadvertently caused this individual to be looked upon as an employee. 

General liability policies covering community associations contain specific language excluding coverage for “any obligation” of the Association “under a Workers’ Compensation (sic) law.” (ISO Language – 1992 – CG 00 01 10 93).   Similarly, the Directors & Officers Liability policy contains a bodily injury exclusion which would eliminate coverage for a work-related injury (also euminating coverage for any legal defense costs.)

A minimum audit “no payroll” workers’ compensation policy is really the best way to inoculate the Association against this type of claim.  This type of policy is available from $518 to $1029 per year.  These policies are subject to audit – so you should still be very careful to request Certificates of Insurance from any vendor prior to their coming to work on your premises.  And maintaining a workers’ compensation policy isn’t an invitation for you to lower your guard – you should still be careful to hire only licensed and insured contractors and subcontractors.

More helpful information regarding your Workers' Compensation policy:
  • HOAs have no coverage under a management company's WC policy, because workers compensation policies will not name additional insureds unless the entity in question has a 50% share in the Named Insured's business.
  • California Labor Code Section 3202 requires the courts to interpret WC law liberally, with the purpose of extending benefits to the injured worker.

  • The federal government is wise to many employers' tendency to pay workers who ought to be direct employees by 1099.  Questionable Employment Tax Practices (QETP) is a new initiative implemented to more closely monitor the misclassification of workers.  (Just ask California's trucking industry; they were charged over $4.2 million for labor classification violations last September.)

  • Even if you are diligent to hire workers who are licensed and insured, there is no reason to think that you will be notified in the event that their license is suspended or their insurance cancels or expires before their work for you is completed.  This is another reason for the added "safety-net" protection of a no-payroll workers comp policy.

  • Workers Compensation does more than pay the cost of an injured worker's medical care and loss of income; it limits the amount an employee can claim - for pain and suffering, for instance.  Without workers comp, however, the amount an employee may sue their employer for is virtually limitless.
 
This letter contains only a general description of coverage and is not a statement of contract. For a more detailed description of the policy conditions and exclusions, please consult the policy itself.
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