Workers’ Compensation Insurance — What It Is and Why It’s Your Problem Too
In most states, contractors are required by law to carry workers’ compensation insurance for their direct employees. It provides medical care, wage replacement, and rehabilitation to employees who are injured or become ill on the job.
That requirement exists for good reason. As a homeowner or small business owner hiring a contractor, understanding how it works protects you. Equally as much as workers’ comp protects the workers on your property.
Hiring a contractor who doesn’t carry current, in-force workers’ comp coverage exposes you to significant liability if someone is injured on your property. This is one of the most important credentials to verify before signing any contract — and one of the most commonly overlooked.
How to Verify a Contractor’s Workers’ Comp Coverage
The right way to verify coverage is to ask the contractor for a physical Certificate of Insurance copy before work begins. Certificates are issued by the contractor’s insurance agent or broker and will show you:
- The name of the insurance carrier
- The policy number
- The policy expiration date
- Contact information for the agent or broker
Don’t stop there. Call the agent or broker listed on the certificate directly to confirm the coverage is current and active. Also verify that the policy won’t expire before your project is complete.
Workers’ comp coverage and its expiration date will typically appear near the bottom and right of the certificate. Look after the commercial general liability (CGL) and automobile coverage sections.
Also check with your own insurance carrier to confirm whether your personal or business policy provides any coverage. This is if a contractor’s workers’ comp falls short.
Be sure to note whether the combined coverage is enough relative to your total project value. This includes both construction soft costs and hard costs.
Understanding the “Contractor Exempt” Claim
Some contractors will tell you they’re exempt from carrying workers’ compensation insurance. That exemption is only valid if the contractor has absolutely no employees. That means no salespeople, no estimators, no project managers, no accountants, no laborers, and no one performing any physical work on your site. And in many states, that includes immediate family members.
Don’t assume a family operation is automatically exempt. A real-world example: on a construction project in Hawaii, a contractor performing construction cleaning claimed owner-operator exempt status. But his wife and daughter worked alongside him on every job. The state of Hawaii required workers’ compensation coverage because family members performing work on a job site are classified as employees under state law. Requirements vary by state, but the takeaway is consistent: if anyone other than the sole contractor is working on your property, an exemption claim deserves a second look.
If a contractor claims exemption but shows up with a crew — family or otherwise — you are accepting unnecessary risk. The exemption doesn’t hold if people are working under that contractor’s direction, regardless of how they’re classified or paid.
There’s another scenario worth knowing: if a contractor outsources labor through a staffing or labor agency, those workers may be covered by the agency’s workers’ comp policy. That doesn’t mean you’re off the hook. If an agency worker is injured on your property, the agency’s insurer has the right to come after you to recover costs.
Subrogation — What It Means and How to Protect Yourself
Subrogation is the right of an insurance company that paid a claim to seek reimbursement. This from another party who may be responsible for the loss. In a construction context, if a labor agency’s workers’ comp insurer pays out a claim for an injured worker on your job site, that insurer can subrogate. This mean they can pursue the contractor who hired the worker, and you as the property owner, to recover those costs.
Two contract provisions protect you from this exposure:
Waiver of Subrogation
Request that your contractor’s workers’ comp policy include a waiver of subrogation in your favor. This prevents the insurer from coming after you to recover claim costs.
Additional Insured Status
Ask to be named as an additional insured on your contractor’s policy, specific to your project. This extends a layer of the contractor’s coverage to you directly.
Both are standard requests that reputable contractors and their insurers accommodate routinely. If a contractor pushes back on either, that’s worth noting.
The Reality on Your Job Site
Here’s the practical challenge: you have no way of knowing, by looking at the workers on your property. Who is the direct employee, the guy that’s a leased laborer, an independent contractor, or who may be getting paid off the books. That uncertainty is exactly why verified, current insurance coverage is your first line of defense.
Asking “Do you carry workers’ compensation insurance?” — and requiring proof before signing a contract — is a non-negotiable step in hiring any contractor. A contractor who can’t produce a current certificate of insurance before work begins is a contractor who isn’t worth the risk.
