Why Should a Community Purchase Worker’s Comp Insurance?

This is a great question that comes up quite often from both board members and managers alike. Most aren’t sure what the answer is to this question, or how to even assess all the issues surrounding this coverage. Hopefully, with this information you can make an informed decision about whether you should purchase a worker’s compensation policy or not. I firmly believe that every board should at least consider worker’s compensation coverage for added community protection.

Some contractors and vendors live job-to-job, whether the economy is rough or not. In addition, many boards knowingly (and sometimes unknowingly) hire uninsured contractors, and still don’t carry worker’s compensation coverage for the association. Whether it’s financial distress or office oversight, there’s always the potential for a contractor’s own worker’s compensation (and even their liability) insurance to lapse. Yes, they’ve given you a certificate of insurance, but that doesn’t always mean they are paying their bills. In most cases, a carrier and/or agent will inform all certificate holders that the contractor’s coverage has lapsed, but many times that notification could come weeks after the policy has actually been canceled. The certificate confirms coverage for the day you receive it, but a month or so down the road, the contractor’s carrier could cancel them for nonpayment while they’re still doing work for your association.

In the event that a contractor’s employee is injured, that employee would be able to bring a lawsuit against all parties involved in that project. However, if the association has its own worker’s compensation policy in place, it will keep any employee or contractor’s employee from filing a tort suit against the association. In fact, one of the major reasons worker’s compensation coverage was designed was to keep employees from being able to file suit against their employers. The same holds true for any association.

Many managers and boards ask if a signed hold harmless agreement will adequately protect the community. The answer is no. While a well-drafted agreement can certainly benefit the community, it will not keep an injured party from suing, or even collecting from an association after bodily injury.  There’s always the possibility that an attorney could poke holes in the agreement, regardless of how well-drafted it is.

Another common misconception is that if the association doesn’t carry a worker’s compensation policy, then their general liability policy would respond (via its medical expense limit). I’d be extremely careful about this way of thinking because most liability policies contain a specific exclusion for any type of worker’s compensation-related loss. Why? It’s simply because a liability policy was never designed to respond to worker’s compensation-related injuries. If there’s no worker’s compensation policy in place, and the general liability policy can’t be triggered for protection, then the association will more than likely be left paying out of pocket for the injuries.

Another common scenario to consider is if a committee member, volunteer, or board member pays a neighborhood kid, a friend, or a retired owner to perform small jobs around the community. What happens if that paid person, for example, slips and falls off a ladder, or develops tennis elbow or carpal tunnel syndrome while working on behalf of the association? Even the smallest jobs can cause long-lasting injuries, and anyone paid to work on behalf of the community will more than likely be deemed an employee by legal definition. 

Lastly, another question that’s often asked is whether volunteers are considered employees and whether they’re protected by a worker’s compensation policy. The answer is no, volunteers are not employees, and the worker’s compensation policy might protect volunteers, but it’s doubtful.  Volunteers provide free labor and are not paid for their services. The definition of an employee is someone who is hired for a wage, salary, fee, or payment in return for work performed. That is not the definition of a volunteer, and thus a worker’s compensation policy (99 percent of the time) will not pay for injury to a volunteer. So what should the community do? They should look for a worker’s compensation policy that will provide additional coverage for volunteers, or the community should consider two separate policies, one for worker’s compensation coverage and one for volunteers.   

There are millions of injury scenarios that could crop up and plague any association, so there is no reason to put your association at risk when worker’s compensation premiums (for no employees) are so affordable ($250 to $700 annually, depending on your state and any added coverage options you may elect to carry).