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Contractors and Subcontractors Must Obtain Certificate of Workers' Compensation Insurance From Their Subcontractors Before EACH Project or Else Face Additional Exposure

February 21, 2007  |  from South Carolina Construction Law - Discussion of mechanic's liens, delay claims, coverage, and constr

A recent < ?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />South Carolina case demonstrates the importance of contractors and subcontractors obtaining a certificate of workers’ compensation coverage for EACH subcontractor before EACH new project, regardless of whether they have an ongoing relationship with the subcontractor.  Most contractors only obtain certificate of workers’ compensation coverage once a year and rely on that certificate.  This is a dangerous practice made clear by a recent decision of the S.C. Court of Appeals.< ?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />ass=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"> face="Times New Roman"> 

          In Hardee v. McDowell, a general contractor routinely used the same subcontractor for framing work.  In March 2002, the subcontractor provided the general contractor a certificate of coverage.  This certificate indicated that the subcontractor had workmen’s compensation coverage from January 30, 2002 through January 30, 2003. 

 

The subcontractor worked on various jobs for the general contractor throughout the spring and summer of 2002.  The general contractor relied on the certificate of insurance he saw at the beginning of the year and did not ask for proof of insurance on these jobs.  In September 2002, the subcontractor started work on a new project for the general contractor. 

 

During this new project, an employee of the subcontractor was injured.  Several weeks following this injury, the subcontractor learned that the insurer had canceled coverage the day before the employee’s injury.  The employee filed a worker’s compensation claim against the subcontractor and the general contractor.

 

Under certain circumstances, South Carolina law allows general contractors to be covered by a State fund for worker’s compensation benefits when a subcontractor’s coverage lapses.  To qualify for this coverage, the general contractor must collect proof of insurance at the time the subcontractor is engaged to perform work.

 

          The Court in Hardee v. McDowell ruled that a subcontractor is “engaged to perform work” when it begins work at a particular construction site.  The Court found that the general contractor was responsible for the benefits to be paid to the subcontractor’s injured employee and not entitled to coverage. 

 

It is not sufficient for the general contractor simply to obtain proof of insurance the first time it hires a subcontractor in any given year regardless of the number and variety of jobs the subcontractor performs for the general contractor throughout the year.  The general contractor is not required to collect proof of insurance throughout the term of a particular project.  However, the general contractor must collect proof of insurance at the start of each new project. 

In conclusion, this case makes it clear that a general contractor may very likely be responsible for the workmen’s compensation benefits owed to an injured employee of a subcontractor whose coverage has lapsed.  In order to guard against this, it is vital for the general contractor to collect documentation of insurance before EACH subcontractor begins EACH new project.

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Filed: Risk-Insurance