When you're a General Contractor, ensuring your business and subcontractors are adequately insured is critical—whether you're in Texas or any other state. Opting out of Workers' Compensation Insurance may seem like a cost-saving move, but the consequences can be devastating, especially if one of your subcontractors lacks proper coverage.
The Texas Case: What Happens When You Don't Have Workers' Compensation Insurance
Consider the case of a General Contractor in Texas who decided to forego workers' compensation due to Texas' unique "right to work" laws. He believed that, by cutting this expense, he could save significantly. He subcontracted a roofing job to another contractor needing more workers' compensation coverage.
Tragically, one of the roofing subcontractor's employees fell from the roof and died. Since neither the subcontractor nor the general contractor carried workers' comp, the victim's family sued the general contractor. Over the past nine months, the contractor has been paying hefty legal fees to defend himself, with no workers' comp to cover the costs. The court battles are far from over, and he faces the potential of financial ruin—all due to the decision to skip workers' comp.
This isn't just a Texas-specific issue. Even in states where opting out of workers' compensation isn't allowed, contractors are still at risk if their subcontractors need to carry proper coverage. In any state, a general contractor can be held liable for injuries a subcontractor's employees sustained if uninsured.
Why You Need Workers' Comp and Insured Subcontractors
No matter which state you operate in, here's why you must ensure both you and your subcontractors are properly insured:
Uninsured Employees Become Your Responsibility
If your subcontractor doesn't have workers' comp, their employees become your responsibility in the event of an accident. You could be left footing the bill for their medical expenses, lost wages, and even legal claims.Increased Premiums After Insurance Audits
Workers' compensation insurers routinely conduct audits to assess risk. If it's discovered that you hired an uninsured subcontractor, your workers' comp carrier will treat the subcontractor's employees as your own. They will adjust your premiums based on the subcontractor's class codes and payroll, significantly increasing your insurance costs.Legal Risks and Costs
As in the Texas example, you could be sued and forced to pay out-of-pocket for legal fees and damages. If you're found liable, this could affect your business and jeopardize your assets.
Best Practices: Protecting Yourself and Your Business
Here's how to avoid these costly mistakes:
Always Require Certificates of Insurance (COIs): Before subcontractors start work, ensure they have active workers' compensation insurance, and keep a copy of their COI for your records.
Make Sure You Are Named as an Additional Insured: This gives you added protection by making sure that, if a claim arises, their insurance covers your company as well.
Use Subcontractor Agreements: Include clauses that require workers' compensation and transfer liability back to the subcontractor. A hold harmless clause will protect you if something goes wrong.
Audit and Review Regularly: Periodically review your subcontractors' insurance coverage to ensure compliance and avoid surprises during an audit.
Reminder:
Whether you're operating in Texas or any other state, the lesson is clear: Ensure you and your subcontractors are insured. Skipping workers' compensation might save you money in the short term, but it can lead to financial disaster if an accident happens. Please protect your business by ensuring all subcontractors carry proper insurance coverage and always stay on top of your policy.
For more advice on managing risk and ensuring proper insurance coverage, contact Pascal Burke Insurance Brokerage at (877) 893-7629 or email us at insure@pbibinc.com. We can help you evaluate your workers' comp needs and protect your business from legal and financial pitfalls.