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.
Before Any Injury Occurs
Contracting with a subcontractor. Contractors using CCIPs need to be proactive. When entering into an agreement with a subcontractor, include a requirement that the subcontractor fully cooperate with any accident investigation including workers compensation injuries. Continue to monitor a subcontractor’s cooperation throughout the lifetime of workers compensation claims. Consider the subcontractor’s cooperation in workers compensation claims when deciding whether to retain that subcontractor on a new project. If the subcontractor is not cooperative in workers compensation claims, your liability on claims most likely increases, which in turn increases your workers compensation insurance premiums—which could mean that a particular subcontractor is no longer the best bidder for a new project.
Pre-injury education. Contractors should implement a risk management program and require all employees of the subcontractor to undergo safety training. The contractor should schedule routine training, reminding all employees of work hazards and all of the rules regarding an on-the-job injury, including reporting an accident immediately, to whom and how to report an accident both before and after hours, where to seek initial medical treatment and what accident reports need to be completed.
Contractors must make certain that they have an employee, the “go-to investigator,” on each jobsite (or at least in the general vicinity) who is available to investigate and handle any potential workers’ compensation accidents as soon as the incident is reported. Also, require subcontractors to have a “go-to investigator” for the subcontractor’s employees, and that person’s complete contact information must be on file. This designated employee needs to be trained on the contractor’s workers compensation investigation policies.
Risk managers should create template forms for the go-to investigator to use for all workers compensation claims. This report should include detailed contact information for all witnesses (in case the subcontractor or his or her employees are hard to find when additional information is needed), and detailed questions for the injured employee to answer.
In addition to providing the facts surrounding the accident, make sure the injured employee provides his or her personal medical providers and pharmacy, past medical history, and whether he or she has had previous symptoms, injuries or medical treatment to the body part(s) alleged to be injured.
When an Injury Occurs
Immediate investigation and attention to medical treatment is vitally important. Therefore, using the template forms created, have the claimant and witnesses report all facts surrounding the alleged injury.
If witness statements are not taken soon after the accident, it becomes harder to track down past employees to corroborate an alleged injury—especially when the witness was not a direct employee, because the employee has no incentive to help with the investigation as compared to an investigation controlled by the employee’s direct employer.
When the information is provided at the outset of in injury, the insurance carrier can begin an investigation immediately to corroborate the employee’s allegations, thereby reducing fraud and the contractor’s liability on the claim. The carrier can request past medical records to confirm the employee had no pre-existing conditions and whether the employee was treated for the same body part recently, or if any other red flags arise as to the truthfulness of the employee’s allegations.
Throughout the Life of a Claim
Once an employee starts treatment, be mindful to continue to follow up with the employee on the progress of treatment, work restrictions, and any concerns the employee may have about the workers compensation process. If an employee feels he or she is being treated fairly throughout the life of a claim, he or she will often return to work sooner with a lower permanent impairment rating and will be less likely to retain an attorney, which almost inevitably increases the liability on the claim.
Since the subcontractor has no liability for the claim, he or she may not be as likely to take an interest in the accident and subsequent treatment. So, the burden falls on the contractor holding the CCIP to reduce the potential liability. It is always helpful to remind an uncooperative subcontractor that his or her cooperation (and lack thereof) may impact future jobs.
Another issue caused by CCIPs is returning the employee to light duty work. Usually, an employer is encouraged to return the injured employee to light duty status because the employer is not required to pay (or is required to pay less) for temporary benefits when the employee is working, therefore reducing their workers’ compensation liability. However, since the subcontractor does not bear the burden of liability for paying temporary benefits, the contractor must impress upon the subcontractors, both during negotiations of the contract and throughout the lifetime of the workers compensation claim, the importance of providing work within the employee’s restrictions.
If an employee remains out of work despite light duty restrictions, the employee is getting paid to not work. There is a high likelihood the employee will not be motivated to return to work because he or she can make some money without working (although it may be less money than prior to the accident).
Of course, a great motivator to keep a subcontractor on your side throughout the life of a workers compensation claim is to keep a working relationship with the subcontractor. When this is not possible, investigation of the claim and cooperation by the subcontractor can become more difficult. But, if you have an organized, coherent action plan in place when an injury occurs, you can avoid many of the pitfalls of consolidated insurance and reap the benefits of avoiding litigation on the statutory employer issue and a subcontractor’s inadequate policy. Be mindful of the fact that subcontractors will come and go, so immediate investigation into the alleged accident with the employee and witnesses is almost always absolutely necessary.
Closing a Claim
If a workers compensation claim requires a hearing, you may need employees of your subcontractor to testify regarding the accident, previous events or subsequent events. Since the employees are not your direct employees, you should subpoena the witness for the hearing to motivate him or her to appear. That will give you recourse if he or she does not appear (including an order compelling his or her attendance).
Again, use your subcontractor to help line up interviews prior to the hearing to make sure you understand what the witness can testify to, and the subcontractor can also help facilitate the witness’s travel to a hearing.
As an alternative, set and take the witness’s deposition or get a signed and notarized affidavit prior to the hearing regarding what the witness knows about the employee and the alleged work accident. You may be able to get an affidavit soon after the injury, which helps in case the witness cannot be easily located later in the life of a claim.
Always try to be present at a hearing. Even if you are not testifying, your presence shows the workers’ compensation judge that you take the claim seriously. Further, your presence may keep the employee and other witnesses from falsely testifying, since you may be able to tell your attorney how to direct questioning on cross-examination based on your knowledge of the claim.
Reducing Liability
There are advantages to a CCIP that outweigh the potential negatives if a contractor remains proactive and deliberate in their handling of workers compensation accidents. If a contractor agrees to a consolidated insurance program, the contractor is in control of the workers compensation claim from the outset, as opposed to gaining control after weeks, months or years of litigation that finds the contractor to be the employee’s statutory employer based on the subcontractor’s lack of workers compensation insurance.
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.