Contractor and Subcontractor Liability in Workers’ Compensation: Who is the Statutory Employer?
A recent unpublished case from the Court of Appeals, Suazo v. Gutierrez-Bojorquez, reiterates the importance of obtaining certificates of insurance and ensuring coverage has not lapsed before allowing subcontractors to begin work on a project. Without proper coverage, general contractors can be held liable for injuries of their subcontractor’s employees.
The plaintiff in Suazo was an employee of Juan Gutierrez-Bojorquez, a six-year subcontractor for Robco, a construction firm (the general contractor). The plaintiff was injured on the job in April 2016, when he fell from scaffolding and fractured his ankle. The question that arose was: Which employer must provide workers’ compensation benefits to the injured employee?
N.C. Gen. Stat. §97-19 provides a liability shield for general contractors by requiring them to obtain certificates of insurance from their subcontractors that demonstrate appropriate workers’ compensation insurance for the current project. Provided that a general contractor obtains a valid certificate from the subcontractor before work on the project begins, the general contractor is not considered a statutory employer of the injured employee. If a subcontractor is uninsured, however, the statute protects the injured employee by allowing them to go up the chain of contractors to the first insured party from whom workers’ compensation benefits must be provided.
In this case, Robco (the general contractor) required all subcontractors to provide certificates of insurance before beginning work on any job. Robco would also receive notice from an insurance agency when one of its subcontractor’s policies was about to lapse. Gutierrez (the subcontractor) maintained workers’ compensation coverage in the years leading up to plaintiff’s injury. Gutierrez would receive a similar notice from the insurance agency when his policy was about to lapse. In April 2016, Gutierrez reportedly called his broker to pay his bill, expecting the broker to send the new certificate of insurance to Robco, as it had in the past. After Guiterrez reported the plaintiff’s accident, his broker informed him that there was no record of a new policy being issued. Guiterrez provided proof of the April 2016 payment and his broker “refunded the payment and reissued a new policy which was effective after the injury.”
The plaintiff filed a claim in June 2016, naming Robco, the general contractor, as his employer and naming Gutierrez as his direct employer, but alleging Gutierrez was uninsured. The Full Commission found as a fact that Gutierrez was uninsured at the time of the accident and concluded Robco was the principal contractor who failed to obtain a certificate of insurance. Robco was the “statutory employer” and was, therefore, responsible for providing benefits as a result of plaintiff’s injury. Robco appealed to the Court of Appeals, but the Court of Appeals agreed there was competent evidence to find Gutierrez was uninsured as Robco notified Gutierrez their policy was about to expire, and Gutierrez learned the policy had lapsed by the time he reported the plaintiff’s injury.
The Court also analyzed whether any exception to N.C. Gen. Stat. §97-19 applied that could have otherwise relieved Robco of liability. The first, “the principal obtains a certificate of insurance” prior to subletting the work, did not apply. The Court held that in order for this defense to apply, “the certificate of insurance Robco had in its possession . . . must have confirmed Gutierrez-Bojorquez had a valid workers’ compensation insurance policy in place for the time the job would be performed.” At the time of the injury Robco had an expired certificate in its possession. Four days after the injury, Robco received a new certificate retroactively applying coverage to the date of injury. Thus, Robco did not timely obtain a new certificate, knew Gutierrez was uninsured (since it had notified Gutierrez before expiration), and still allowed work to begin. None of the other defenses applied and it was held that Robco was the statutory employer.
Risk Handling Tip
Any employer who subcontracts work to another business must obtain a valid certificate of insurance before allowing the subcontractor to begin work. For employers with multi-year subcontracting agreements, monitoring your subcontractor’s coverage dates is extremely important. The general contractor should have a valid and updated certificate of insurance from its subcontractor before the expiration of the subcontractor’s policy. The general contractor needs to ensure that the certificate of insurance is current, applies geographically to the job at issue and does not exclude any type of necessary coverage. If these terms are not fulfilled, consider a work stoppage until coverage is verified and a valid certificate of insurance is in-hand. Retroactively dated policies are insufficient to provide after-the-fact coverage.
If you have any questions or would like to discuss these nuances in more detail, feel free to reach out to Luke West, Julie Hooten or another member of our workers’ compensation team.
Note: Unpublished cases such as Suazo v. Gutierrez-Bojorquez, do not constitute controlling legal authority. Citation is disfavored but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.