Workmen’s Compensation and Condominium Insurance

P.D. from New London County writes:

Dear Mister Condo,

I know you’re not a lawyer but I pose this question because officers of other condo associations may be exposed to this same problem. Our modest size condo association is required by our insurer to carry workman’s compensation insurance even though we do not have employees of any sort. The rate is low, of course. Our “staff” is all volunteer as you know they must be. I have been told that having this sort of sub-coverage covers us in case a subcontractor of a hired contractor happens to not have such coverage or may have allowed it to lapse – or any of the many possible variations of that theme. As do all condo associations, we hire outside people of several disciplines to perform general maintenance on our facilities.

Here’s the problem:
We recently received our annual audit questionnaire from our insurance company. This year they wanted copies of the 1099s that were turned in with our taxes for each contractor who had done work for us over the past year – and copies of their insurance certificates *showing their workman’s comp coverage*. BUT… we were warned by our insurance agent that if we submitted records of work performed by an independent sole proprietorship (i.e.: a guy who works by himself and does did not have workman’s compensation insurance because he has no employees of his own) then the insurance company would back-charge us the workman’s comp rate for that person in their job category.

Understand that we have had work done by contracting companies that do carry workman’s comp insurance, but they are not the issue. Over the course of the year there were some sole proprietors who did minor painting and odd jobs for us. We reported those that had earned 1099s (>$600) but we were sorely tempted to not to do so, because this seems entirely unfair both to us and to the small, single person contractors who, because of this back-charge, we feel we simply can’t hire in the future. In discussions with our agent there were implications that this is a “Catch 22” inadvertently imposed by Connecticut law. I have no idea if that is factual.

Are we being singled out for some sort of revenge or is this happening to all of us? Does it seem as perverse to you as it appears on the surface?

Mister Condo replies:

P.D., when it comes to state laws about any type of insurance, I am never surprised. The laws regarding insurance requirements for condominiums in our state have changed significantly in the past few years, most notably in 2010 when the Common Interest Ownership Act (better known as CIOA) was overhauled and many new requirements added. Since I have heard arguments for and against Worker’s Compensation insurance as it applies to Connecticut condominiums, I turned to an expert in the field for some clarification. I asked Rich Bouvier, Certified Insurance Counselor, and principal of Bouvier Insurance for his opinion on the matter. Here’s what Rich had to say:

“P.D., protecting associations like yours from possible liabilities is the job of the community association insurance professional. Part of that protection is making sure your association has coverage for all laborers that do work on behalf of the association. For the most part, associations require all workers that enter their property to have proper worker’s compensation coverage in place before they begin work and routinely require that a copy of the proof of coverage be placed on file. Requiring that your association carry a low-cost worker’s compensation policy as a matter of practice is fairly common from insurers. The reason is simple. If a worker is injured and brings a suit against the association, the worker’s compensation policy kicks in to provide liability coverage. Without this policy in place, the association could find itself open to liability. Since the premium for such coverage is fairly inexpensive, it just makes sense for the association to purchase the protection.

The insurance company audit is an entirely different situation altogether. To make sure the proper coverage is being provided, insurance companies routinely audit associations that they insure. This is for the association’s protection as well as for the edification of the insurance provider. The insurer is looking to see that the association hasn’t left itself vulnerable to liabilities. From what you have described in your question, it would appear the audit is finding potential liability in the form of contractors who do not carry worker’s compensation insurance on themselves. Have you asked what might happen if such a contractor were to get injured while working on your property? If a lawsuit resulted from the injury and there was no insurance in place to protect the association it could prove quite costly. The insurer is looking to protect the association from an uninsured or underinsured scenario. It really is in the best interest of the association to have the proper coverage at all times. Worker’s Compensation claims could easily run into the tens and hundreds of thousands of dollars. It is better to be covered, in my opinion”.

That sounds like good advice to me, P.D.. All the best!