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Opting Out Can Be Subcontractor Conundrum With Ghost Policy


Opting Out of WC Coverage Using Ghost Policies

A subcontractor opting out of workers comp coverage can be tricky, to say the least.  I received a great question in my post about certificates of insurance and subcontractors. What happens if a main contract or a sole proprietor does not cover themselves on the certificate of insurance?

Human Icon Opting Out With One Different Color
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This question is a great one. Business owners and certain executives can opt-out of workers’ compensation coverage. If a sole proprietor opts out, then the policy is actually a “ghost policy” of sorts. The subcontractor has a policy, but it covers no employees. The insurance premium auditor will definitely charge the main contractor for the coverage of the sole proprietor in this case.

If there is any question on why the insurance premium auditor would do this, please see my last post on The Ladder of Insurance. If the sole proprietor was injured, it is almost a guarantee that the Workers Comp courts would place the responsibility for payment on the main contractor’s Workers Compensation policy.

Update – certain states have deemed ghost policies to be illegal.

Next Up – Your Company May Be Covering Extra Employees For Work Comp Coverage

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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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