Published in the ECHO Journal, May 2008
A recent California Court of Appeals case, Heiman v. Workers’ Compensation Appeal Board, has shed new light on the potential liability that associations and their managers face when contracting for on-site service and repair. Specifically, it highlights the importance for every association, whether it has employees or not, to obtain a workers’ compensation policy.
The Case
For those of you unfamiliar with the case detail, the “cliff notes” version is this: Pegasus Management (Heiman), the manager for the Montana Villas Homeowners Association, hired the Hruby Company on behalf of the association to install rain gutters on the association’s common area. An employee of Hruby was electrocuted and seriously injured on the job. Hruby was uninsured (and unlicensed); so the injured worker pursued the association AND its management company for workers’ compensation benefits. The absence of a policy to provide benefits for the injured worker left the Workers’ Compensation Appeals Board assigning payment obligation equally to the contractor (Hruby), the association (Montana Villas), and the management company (Heiman/Pegasus Management). The management company took the Comp Board to court, arguing they should be excused from liability because they were merely acting as an “agent” on behalf of the association. Unfortunately for Pegasus (and potentially all other community association managers), the court upheld the Comp Board’s findings (Heiman v. Workers Compensation Appeals Board) and ruled that the management company could not escape liability simply because they were acting as the “agent” on behalf of the “principal” (Montana Villas). Great information about this case in detail can be located on the Internet, using the case name for searching.
The interesting thing for a manager to consider is that had the association carried its own Workers’ Compensation policy, the Comp Board would have likely stopped there and closed the case because benefits would have been available for the injured worker. The manager could have protected himself simply by insisting that his client carry the appropriate insurance.
The Recommendations
The obvious first recommendation is to hire only licensed and properly insured contractors. While professional managers are generally very good about that, it is important for association board members to draw a line in the sand when it comes to this issue. Do not allow any type of contract for on-site services without verification of proper licensing and appropriate insurance for Workers’ Compensation and for the work performed.
The case also highlights the importance of an association’s having a “backstop” if the Workers’ Comp policy carried by the contractor fails. Unfortunately, verification of coverage sometimes isn’t enough. Even if the manager and the board are diligent in checking licensing and verifying coverage as reported on the certificate of insurance, a lapse could occur, exposing both the association and the manager. The only way to be absolutely certain that your association will not bear the risk of a contractor’s insurance failure is to obtain your own “if-any” workers’ compensation policy.
Additional Exposure
In addition to the “if-any” exposure addressed in this case, an association (and now potentially its management company) are at risk of owing workers’ comp benefits to volunteers who perform “work” on behalf of the association. Imagine these scenarios: an association member volunteering at a “Saturday Community Clean-up Day” is injured, or a board member slips and falls during a site inspection. While the General Liability (GL) policy provides “bodily injury” coverage, bodily injury to an “employee” is specifically excluded; so the exposure can be pushed to a workers’ compensation policy. A volunteer performing work on behalf of the association could easily be construed as an “employee” by the GL carrier, especially if the injuries are significant. If the association carries the right type of workers’ compensation policy, this exposure can be covered too.
Coverage Availability
Until recently, this type of complete workers’ compensation policy for common interest developments has been tough to come by. While some carriers offer coverage for the “if-any” exposure, they do not offer coverage for volunteers. Other policies provide “if-any” coverage and only offer coverage for board members, recommending that you simply extend the definition of “board” via appointed committee. It is important that the policy obtained offer coverage for both the “if-any” exposure and all volunteers working at the direction of the board.
One company has recently released a product at a very reasonable premium in a number of key states. Premiums range from $575 to $960 depending on the state, and coverage can be purchased through your local Broker/Agent.
Summary
This case demonstrates that simply being diligent about insurance and licensing verification for contractors that provide on-site service for your association is no longer enough. While those are by far the most important first steps to protect your association, you must insist that your association have the backstop of its own workers’ comp policy for “if-any” and volunteer coverage.
Garth Leone is the managing member of CAIS, LLC. CAIS is a specialty Retail Broker and national wholesale Managing General Agent and is the National Program Administrator for the OneBeacon Community Association Workers’ Compensation program. He maintains his Certified Insurance Counselor designation. For additional information regarding this article, he can reached via e-mail at garth@caislive.com.