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?
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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