General contractors all know how important it is to obtain certificates of insurance for subcontractors they use. However, as relationships between general contractors and subcontractors develop and strengthen, it is not uncommon for general contractors to become more lax with obtaining proper certificates for each and every job and making sure that those certificates meet the requirements of their workers’ compensation carrier. Improper certificate administration can add significant liability onto the general contractor.
In a recent case heard by the North Carolina Court of Appeals, Jose Clemente Hernandez-Gonzales v. Jimmy Worrell d/b/a Worrell Construction, the Court issued guidance regarding the liability a contractor assumes when a subcontractor is used on a project. This case illustrates the “liberal” interpretations of existing statutes the N.C. Industrial Commission often use.
The crux of this case, when it comes to the general contractor’s liability, results from the fact that the general contractor relied upon a subcontractor’s certificate obtained from a previous job. This exemplifies the importance of proper certificate administration and obtaining a new certificate for every job, regardless of the relationship you have with the subcontractor. Because of this mistake, the general contractor was found to be liable to the same extent as the subcontractor and, should the subcontractor default on medical and/or expense payments to the employee, would be responsible for those same payments.
This court case can impact general contractors’ insurance costs as well, even if there is no accident or workers’ compensation claim to be paid. For example, a contractor’s workers’ compensation policy premium is determined by the estimated payroll for their employees. Should a general contractor utilize an uninsured subcontractor, they will then be responsible for that subcontractor’s estimated payroll as well. At the end of the workers’ compensation policy period during the final audit, if the general contractor cannot provide job-specific certificates on all subcontractors utilized during the policy year, they will owe additional premiums to their carrier. More than likely, these will be costs that the contractor did not originally budget for.
We hope this illuminates the importance of proper certificate administration. There are many different tools and resources available to assist in the management of this risk. For more information, please feel free to contact one of our construction experts James Kirkpatrick at firstname.lastname@example.org or 800-682-7741.