When A Ghost Policy Becomes Scary – Accident Occurrence = Bad Day
J&L Risk Management Consultants receives an inquiry on locating an agent that will write a ghost policy at least monthly. As we are not insurance agents, we refer the caller or emailer to a number of local agents – with two caveats. The two warnings are:
- If an accident occurs and an uninsured subcontractor is ruled an employee by a Workers’ Compensation Judge (Commissioner), the ghost policy insurance carrier may deny the claim ;
- or the policy that was not considered to have enough premium for a physical audit is now up for audit with an accident hanging over the audit.
A policy and audit that covers #2 above sits right in front of me now on my laptop screen. The premium auditor assessed approximately $123,000 in premiums on a ghost policy.
Some states consider a ghost policy illegal which takes the policy from a civil matter to a possible referral to criminal court.
My First Exposure in 2001
The first time I had to deal with a ghost policy was when a supposedly insured subcontractor was performing work for a school system. A tree service company subcontractor had fallen from a tree and was seriously injured. The tree service owner had shown a Certificate of Insurance to the school system that looked very legitimate except the cert covered no employees or subcontractors.
The insurance carrier had denied the claim. The school system contacted me soon after the accident occurred – if they had only taken a few minutes to call the carrier or agent listed on the cert. No one was tasked with calling the carrier or agent.
I called the agent and carrier – even worse the policy had been cancelled due to lack of payment before the accident. The school system was self-insured for workers’ compensation – double ouch as there were no carriers involved that could have provided coverage. Public school Risk Managers are now much more careful when using subcontractors.
Ghost Policy – Why Attempt It?
According to Leaf and Limb,
Large variations in price quotes from different tree service companies are often due to one factor: workers’ compensation insurance. Just because a tree service provides a certificate of insurance showing proof of coverage does not mean it actually has real protection for its employees.
Is a ghost policy based on profit motives?
By obtaining a Ghost Policy, a tree service is able to produce a certificate of insurance while saving anywhere from $30,000 to well over $300,000 per year depending on the size of the company.
