Of Course You Don't Need Workers' Compensation Insurance - Or Do You?

We occasionally get questions about whether a homeowners association should obtain its own workers’ compensation insurance, and when we recommend “Yes,” the inevitable question is “Why; we don’t have any employees?”

Most, if not all, homeowners associations, at one time or another have a need to employ independent contractors. Those independent contractors often have employees. A good contract between the association and the contractor for the provision of services will contain a provision that the contractor will carry its own workers’ compensation insurance, and will require proof of such insurance to the association before the contractor begins its work. However, many poorly written contracts, or contractors’ proposals that become the contract, rarely contain these requirements. Even if the contract does contain these requirements, the policy could lapse while the work is being performed, the policy could be canceled by the contractor, or in unusual cases, the contractor’s “proof” of insurance is fraudulent.

You might ask, wouldn’t the contractor be responsible to the injured worker if it represents that it has the insurance, but in fact does not? In Colorado, the Workers’ Compensation Act provides a remedy in areas where remedies do not exist at common law. It is a no-fault system, and compensation is paid to an injured employee without question of fault even though the employee may be negligent and even if the employer is not negligent. In return, the employer enjoys immunity for for injuries incurred in the workplace. In effect, if appropriate insurance is in place, an injured employee cannot bring a separate lawsuit for the injuries - the employee is limited to the benefits available under the workers’ compensation insurance. Importantly, under Colorado law, a claim for workers’ compensation benefits works its way up the pyramid. In other words, if the employee’s true employer did not have coverage, despite a statutory and contractual obligation to do so, the claim for benefits moves up to the next level, until either workers’ compensation insurance is found or there are no further levels to move up to. As an example, if a subcontractor’s employee is injured on the job, the employee would make the claim under the subcontractor’s workers’ compensation insurance. If the subcontractor didn’t have the insurance in place, then the claim would move up to the general contractor’s workers’ compensation insurance. If the general contractor didn’t have the insurance in place, the claim would move up to the association’s workers’ compensation insurance. If the association didn’t have worker’s compensation in place, it would be potentially liable for the full damages proven by the injured employee, with only a right to seek reimbursement from the general contractor. When there is workers’ compensation insurance, the association is granted immunity from common-law actions by the insured contractor, subcontractor and their employees.

As early as 1918 the Colorado Supreme Court stated, “The purpose primarily is to relieve the public of the burden of supporting injured workmen and their dependents, who may by reason of such injuries become objects of charity. The expense is to be treated as an additional cost of the operation of business.”

So, along with all of the other types of insurance maintained by the association, we strongly encourage associations to also obtain workers’ compensation insurance, even if they don’t have their own employees.

If you have questions about whether you need workers’ compensation policies and how the law applies to your association, please give us a call.