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Ladder Of Insurance – What Does It Mean To Subcontractors?


Ladder Of Insurance(c) Can Cause Havoc For Contractors

Picture Of Hand Holding Paper Ladder Of Insurance Drawing

The Ladder Of Insurance affects many subcontractors. Question from one of the blog readers – We use many subcontractors. Can our company be held responsible for Workers Compensation coverage if one of their employees is injured on the job?

The Ladder of Insurance is a term that I coined and copyrighted a few years ago. The Ladder is how a main contractor can be responsible for a Workers Comp injury from a subcontractor with no insurance.

The injured employee may be a 5th or 6th level subcontractor that you may never know even existed until they are injured on the job and wish to file a Workers Compensation claim. We have seen the main contractor have to pay a death benefits claim. The complicating factor in all of this is that the Workers Comp insurance carrier may deny the claim in some cases as this employee was not even on their books.

There was a recent Supreme Court case ruling in South Carolina where the main contractor was held liable as they had a high level of control over one of the subcontractor’s employees. The employee was considered to be a statutory employee of the main contractor. This was not a wholly terrible decision as the employee of the subcontractor was trying to bring suit under an unlimited liability policy. At least the Workers Comp policy provided some limits to the lawsuit.

The courts have almost always started with the primary contractor and moved up the Ladder of Insurance by moving up the chain of contractor and subcontractor until a valid Workers Comp policy was in place. If the employee was a sub-sub-sub-sub-sub-sub contractor of the main contractor and no company except the main contractor has a Workers Comp policy in place, then the main contractor will be held responsible. There are hundreds upon hundreds of court decisions that use this logic.

Picture Of Businessman Ladder Of Insurance Discussion

How do main contractors protect themselves from such a situation? One solution is to always require certificates of insurance from all subcontractors. If this is not feasible, then it may be best to actually build the cost of the insurance into the subcontract and then provide the insurance coverage.

There are states such as California where you can access the Contractor’s Licenses to see if they truly have Workers Comp coverage. A phone call to the insurance carrier is also a good idea if you receive a certificate of insurance. Checking with the subcontractor’s insurance carrier is always a good idea.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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