Sole Proprietor Covers 20 Employees Without Realizing It
Workers Comp sole proprietor covers 20 employees that are not their employees.. I am sorry that I skipped doing an article to finish up the Ladder of Insurance(c). The Federalization of Workers Comp surfaced again. I always want to post on that situation as soon as there is any type of change.
When I do presentations, I like to bring up the situation where a sole proprietor may have 20 or more people on their Workers Comp policy and not know it. As I mentioned before, the Ladder of Insurance means that in a court situation, an uncovered liability will be covered by whatever insurance policy is in place. If a subcontractor has no policy in place and there is an accident, the courts will always go up the ladder rungs of the subcontractor-contractor relationship until a viable Workers Comp policy is found.
A sole proprietor has hired a company to remove a tree that is affecting their office. The subcontracting company does not have an insurance policy in place. The sole proprietor does not ask for a certificate of insurance. The uninsured tree removal company sends out 20 people to remove a very huge tree. If any of the tree removal employees are injured, who would end up paying for their claim?
The subcontractor does not have a valid Workers Comp policy in place. The sole proprietor has a policy for themselves only. Where would the Workers Comp court place responsibility? They would likely use the policy of the sole proprietor. I do realize there are exceptions to this rule in certain states.
How does a sole proprietor take care of this situation? They need to obtain a valid and current certificate of insurance from the subcontractor not only for liability insurance but also Workers Compensation.
I have actually seen this scenario play out on a death claim. One extra point is that the sole proprietor should also call the agent listed on the certificate of insurance to make sure there is a policy in place.
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