Worker’s compensation coverage for contractors

construction insurance

Construction is a high risk business for business owners and their employees. “Production priority” is normally important on work sites. The risk of accidents and injuries is quite high in this line of work compared to many others. Like them or not, OSHA inspections are conducted to ensure that hard-working team members aren’t taking shortcuts to try and be more productive while putting themselves at unnecessary risk. This is why it’s important for construction companies to have a plan to address the cost of the medical payments as well as lost wages in case  of an accident.

Worker’s compensation is the business first protection plan. In 49 states, it is statutorily required for the protection of employees’ income protection. If a policy is in force, coverage is almost always provided. However, is a very small portion of circumstances, a claim is declined by the workers compensation policy, an employee could bring a lawsuit against the employer which could result in a long unpleasant legal battle. This would be in the case of an employer making some sort of unreasonable request or putting an employee in danger under direct supervision. Again, this is very rare. If the employee themselves violate some sort of statute and somehow create their own injury, as in the case of an employee that may show up to work impaired from alcohol, cannabis, a prescription, or even illicit drugs.

To avoid this scenario and provide protection for both employers and employees, most states require that contractors who have employees carry workers’ comp insurance coverage. Failure to comply with the state’s requirement could result in fines and possibly loss of  business.

So let’s see how workers’ compensation provides protection for employees and employers.

Employee protection

Statistically speaking, most construction workers suffer from at least one work related injury during their career. Most injuries result from slips, trips, falls, falling objects and electrocutions. Busy people move quickly, and mistakes happen. Under normal circumstances, these injuries are all covered by the worker’s compensation insurance carriers.

Workers’ compensation coverage will help pay for wages lost during recovery, medical expenses, travel costs for treatment, disability expenses and funeral expenses in the event of a direct or indirect fatality. In most states, $500,000 is the maximum that a policy will pay for an employee fatality to survivors.

Even if the incident was a result of the employee’s negligence, it is unlikely that a judge could rule for the benefit of the employer. This is how courts have held, and there are only few and rare cases where this is challenged.

Business protection

The last point about employers being most likely found responsible even if the employee was at fault resulting in the accident is an important one to keep in mind. Besides the fact that workers’ compensation is required by most states, it is the business’s first line of defense to protect the business in case of an accident at the job.

Failure to carry workers compensation could not only result in legal penalties by the state but could also result in loss of business in the state pushing the business to bankruptcy in some case. Adding an accident to the mixture and the business could be liable for the medical expenses and wages lost to the employee. This is an incredible financial burden for any business that could easily be avoided by abiding with the law and getting a workers’ compensation policy in place.

Owner protection

The owners can be added to a worker’s compensation policy as “covered” as well. This is income, medical, and fatality protection for injuries and illness incurred in the case of employment only. So even though the owner actually pays for the policy on all employees out of company funds, they too are restricted to on-the-job situations. Were an injury or illness to be experienced by and owner while at home, conducting a hobby of some sort, or any other non employment-related endeavor, there would be no protection provided by the worker’s compensation policy.

Many construction firm owners spend most all of their time working “on” the business, vice working “in” the business, i.e.: filling out documents, meeting with insurance and risk management professionals, paying bills, inspecting worksites, executing HR functions, buying materials, etc. As a result of this significant difference in job-related tasks, coverage for owners is typically a minor fraction of what the firm pays for carpenters, concrete pourers, roofers, sheet rockers, painters, gutter installers, finish carpenters, plumbers, fine tradesmen, etc. This is because if the owner never “swings a hammer” there is a strong possibility that the rate could be 10% or less than other employees.

One other distinguishing factor is that an on-site construction employee is considered “covered” from the time that they show up at a designated job site and report to the actual work site. Due the nature of construction company ownership, the principals may be considered “covered” even while driving between jobs, visiting municipal building departments, buying materials, hiring, meeting with CPAs, legal advisors, insurance agents, etc. So there is much to consider when comparing what a construction contractor company principal “should” cover versus what they may not want to.

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