Shifting Liability: A Lesson for General Contractors

Imagine this, you, a general contractor based in New Jersey, just secured a project from one of the biggest retailers to do some work at its warehouse in New York. Given the magnitude of the project, part of the work is subcontracted to another New Jersey company that guarantees it has workers’ compensation insurance. The project begins and you are unfamiliar with the number of subcontractor employees on-site, their day-to-day work responsibilities, or how work tasks are assigned.

Several weeks later, one of the subcontractor’s employees is gravely injured when a pipe he was removing from a ceiling falls on his head. The injured worker has suffered a skull fracture requiring surgery and faces an undetermined amount of lost time and medical treatment. Naturally, he retains counsel and files a New York State workers’ compensation claim. The subcontractor denies the claim, raising as its first defense “no NYS workers’ compensation coverage.”

Immediately, the claimant’s counsel raises Workers’ Compensation Law Section 56 and that is when you first become aware of the claim. Section 56 imposes liability on a general contractor in the event that a subcontractor is uninsured and one of its workers gets injured while performing work for the general contractor. If the law judge rules that Section 56 applies, the general contractor or its carrier is liable for workers’ compensation benefits of the uninsured subcontractor’s employee. Essentially, the general contractor has to assume responsibility for the subcontractor’s failure to secure proper insurance, as well as the consequences including substantial fines and penalties.

The implications become more serious when the claim is controverted by both the subcontractor and general contractor’s respective carriers. In that situation, the general contractor may be barred from asserting key defenses such as no employer-employee relationship or no accident arising out of the scope of employment. Therefore, the general contractor may have to rely on counsel for the subcontractor to litigate those issues before it is determined whether it will be held liable for the life of the claim. The general contractor has to trust someone with unaligned interests to properly defend it. This situation is a catalyst for further litigation outside the compensation landscape.

This situation can be avoided by implementing the following best practices:

  • Mandate that workers’ compensation coverage is required as part of any subcontractor agreement.
  • Request a copy of the workers’ compensation policy and certificate of insurance.. Cross reference not only the work locations but the dates the subcontractor will be doing work for you. If the work crosses state lines, then a policy is needed for each state. If the subcontractor’s policy only covers it until June 2019 but your work extends until August 2019, request that a renewed policy be produced.
  • Put it in writing. In the subcontractor agreement include clear and concise language identifying the workers’ compensation policy and the dates and locations covered.
  • When in doubt, check the New York State Workers’ Compensation Board’s website and conduct a coverage search under the subcontractor’s business name to confirm coverage.

Taking these steps may appear tedious or redundant, but in the long run, it can save a lot of time and money and prevent unnecessary litigation.

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