Early in my career, my insurance company employer sent me to what was a whirlwind of legal terms and concepts known as subrogation. 

James Moore

I took notes until my arm cramped with pain, as I knew this was important information.  The notebook full of notes became two terms that I coined and copyrighted: the Ladder of Insurance and the Workers' Comp Ladder of Insurance.

The two terms seem similar. They are very similar in some respects but differ in others. I had originally coined the Decision Tree of Insurance Liabilities. That term sounded too convoluted. Let us look at the work comp term now.

Ghost policies become lessons for micro-companies 

A phone call came in two days ago. Many times, J&L is mistaken for an insurance agency. We are not agents. We receive these calls more often now. The caller, from a painting company, requested a policy where the owner is the only person insured and then would be excepted out as owner.   

These are called ghost policies. Some states have outlawed their use. We receive at least 30 calls a year from company owners who have these types of policies. One of two incidents have occurred — either (or both):

1. An uninsured subcontractor was injured. 
2. The insurance carrier performed an audit and wants premium for the uninsured subcontractors. 

Let us center in on No. 1. By the way, how prevalent is this situation? Check out this older article that pointed out 30,000 companies with no workers' comp insurance operating in North Carolina several years ago (yes, 30,000).

Workers' Comp Ladder of Insurance and the court systems

The Workers' Comp Ladder of Insurance, or Ladder of Insurance, points to one opinion that should be considered a fact. A workers' comp judge (commissioner) or court of appeals usually will go up the Ladder of Insurance to see if there is any coverage available to an injured contractor or employee.  

Self-insureds should take notice of this concept. Self-insurance counts as a policy of insurance.   

This is risk management, not legal advice. The risk that a subcontractor of a subcontractor or a subcontractor being an employee becomes real, even if you thought or were told that the subcontractor was insured. 

Certs become critical, yet may be worthless 

Certs, or certificates of insurance, show who is insured by which insurance carrier. We had a client where this situation occurred. The main contractor was given a cert by the subcontractor that was canceled after the contractor/subcontractor contract was signed.  

The subcontractor even supplied a valid subcontract attached to the contract. An injury had occurred, and the injured subcontractor’s subcontractor filed a claim with the client’s carrier.   

The carrier denied the claim originally; the Workers' Comp Commission ruled that the client’s carrier owed benefits, so now the carrier requested premium to cover all the client’s subcontractors, even for the ones with valid certificates of insurance.  

The easiest way to avoid this situation can be found here.  

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.