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Workers comp ghost policy

Posted: Thu Jan 14, 2016 10:55 am
by etimer
This morning I had a health insurance customer call me and ask what I think about a situation.

My health insurance customer is a plumber and has never had an employee. One of the contracts that he wants to sign requires he send a WC COI to them proving he has WC coverage. His Erie agent said that for a premium of @$6,000 they could write a ghost policy for him and send out a COI. I am aware of the "ghost policy" but personally I have never engaged in it. That premium seems way out of line but ???????

1. The contract owner may have a reasonable expectation that the plumber is covered under the WC policy. The contract doesn't say anything about a one man operation can't get coverage in my State and it doesn't mention that the WC policy is requested to cover any future employee on payroll.

2. If the contract owner comes on a job site and sees the plumber working with a helper he may have an expectation that the helper is covered by WC but in reality the helper is a 1099 subcontractor.

3. Below is the law in my State about issuing a COI. If I would issue a COI saying that WC is in effect but there is no real coverage risk, there is no payroll for rating, etc. is it just a shadow way of issuing a COI for something that doesn't "really" exist. The coverage limits would only come into existence if you hire an employee.

"Property and Casualty Insurance Companies and Producers Issuing Certificates of Insurance in
Pennsylvania; Notice No. 2009-02 [39 Pa.B. 918] [Saturday, February 14, 2009]

''Certificates of Insurance'' regarding Property and Casualty coverage are typically used to provide proof of liability insurance to and summarize the terms of a policy for a third party in lieu of providing the third party with a complete copy of the policy.

Certificates of insurance are not forms subject to filing with the Insurance Department (Department) because these certificates do not in any context amend, extend or alter coverage of the insurance policy. They simply summarize the coverage's provided by that policy."

To me it seems that it is a gray area and an E&O claim in the waiting. If the plumber or 1099 sub gets injured on the job is when the crap would hit the fan. That is when the attorney starts sending letters to all those involved to prove what you knew and when you knew it.

To me it is a ghostly way to possibly try to fool someone and that someone is the person offering the contract.

As one site says -

"The arrangement invariably unravels when the sole proprietor/subcontractor’s “independent contractor” is injured on the job. In this circumstance the general contractor, the Industrial Commission and the attorney for the injured worker will all have a number of questions for the subcontractor, as well as the insurance agent who issued the ghost policy. Insurance agents should take great care in issuing ghost policies of workers’ compensation, and make sure their own errors and omissions coverage is current."

As one law firm says - ... -policies/

"In North Carolina, the insurance industry has a fake or useless piece of paper called a ghost insurance policy. Usually these policies are used in the construction industry. General contractors are only relieved of liability for work injuries if they obtain a Certificate of Insurance from the subcontractor. So, the general contractors ask the subcontractors to obtain a Certificate of Insurance. When the subcontractor goes to the insurance agent, he asks for a Certificate of Insurance and the insurance agent asks him if he has any employees. If the subcontractor is a solo proprietor only working by himself, he will say no and the insurance agent is more than happy to take $1,000.00 from the individual and give him a piece of paper that says that he has workers’ compensation coverage. The reason they call it a ghost policy is because there really is no coverage.

However, to get the policy, the subcontractor must sign a document promising that he has no employees. So, no real policy is ever issued. There is no one who is even covered by this policy. It is just called a ghost policy, which is a fake piece of paper to protect the general contractor. Many self-employed or sole proprietors think that this insurance provides protection for them under the workers’ compensation act. It does not. Unless the self-employed contractor specifically buys workers’ compensation insurance which covers the owner of the subcontractor, they have no coverage and protection under the policy."

A better way would be in the changing the wording and using waivers in the contract. But hey there are still agents that write on a COI that they will give 30 days notice if a policy cancels, changes or has a significant change in coverage. It all keeps E&O premiums in business.

Re: Workers comp ghost policy

Posted: Thu Jan 14, 2016 11:55 am
by NYagent301
I think what you refer to as a ghost policy, I know of as an "if any" policy. These are usually written in the Assigned Risk plan of the respective state, as a voluntary carrier would normally not want to touch it. This protects the Employer just in case they run into a situation where the law determines an employer employee relationship exists. For example a small condo association may not have any employees but will hire services and in case one of those services has a lapsed policy the "if any" policy would come in.

In your scenario a one man plumber should be electing coverage which is probably how Erie came to a $6K premium but that even sounds high. Regards to 1099 helpers, if that "helper" does not carry his own WC policy, it would go under your client for both a claim and audit. There is probably a requirement of the General Contractor that coverage cannot contain a rejection for the sole proprietor, whereby appropriate minimum payrolls are assigned and premium amount generated. In the absence of that, an "if any" policy can be written, but I would not recommend it. On an Acord Certificate of insurance there is a Yes/No box indicating if the sole proprietor is included or not. If your client provides a full copy of the contract with insurance requirements it will probably reveal a lot.

Re: Workers comp ghost policy

Posted: Thu Jan 14, 2016 2:31 pm
by yoyowordup
Just because your insured says his 1099 helper is not an employee doesn't make it so.

Unless that helper has his own coverage and provides an insurance certificate he will be covered by the work comp policy.

Re: Workers comp ghost policy

Posted: Thu Jan 14, 2016 8:12 pm
by etimer
I brought up the 1099 as an issue where the contract owner would think that any WC policy would be covering a worker that the contract owner would see on the job. I was just wondering what people thought of the arrangements.

Our State Workers Insurance Fund may have something for the guy but there are far too many variables and I wouldn't touch it.

There has been a lot of abuse over the independent contractor status. I was reading about taxation.

"If the 1099 independent contractor does not pay their State or Federal taxes,payroll taxes or otherwise, the IRS can force the hiring company to pay all withholding taxes, plus interest. The IRS State/Federal can go back up to seven years and request all funds for a company’s 1099 workers."

Re: Workers comp ghost policy

Posted: Tue Jan 19, 2016 1:57 pm
by Big Dog
What sort of entity does this person have? i.e. is it a LLC, S Corp, etc. If it is a LLC, the LLC can purchase W/C and the "members" (owners of the LLC) would be covered for W/C.

Without this coverage, the GC could be responsible for any injuries suffered by your client - no matter what sort of waiver he signs.

Re: Workers comp ghost policy

Posted: Wed Jan 20, 2016 1:45 pm
The acord certificate explicitly addresses if ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? If yes, describe under SPECIAL PROVISIONS below. The explanation would relieve the certificate issuer of any E&O exposure. The burden would then be on the certificate holder to demand the inclusion of all subs that perform any duties for remuneration not to be excluded. There can be up to 5 excluded officers in one Corp.

Re: Workers comp ghost policy

Posted: Mon Jan 25, 2016 1:13 pm
by etracy010
I just went through this in PA. My customer is an LLC and not covered on a Work Comp policy by default. He signed a contract that required a work comp policy. He had to sign a "opt in form" to qualify for the work comp policy. He bought the policy and paid the estimated premium all up front. Here is the kicker though. When the contract was up (6 months later) we didn't cancel the policy. He was audited and had to pay for the full year of his salary. Remember to cancel the policy when the contract expires

Re: Workers comp ghost policy

Posted: Thu Nov 01, 2018 9:00 am
by BeardedBrokerSir
Hey! I don't have any options for Ghost policies, but I see you handle other commercial clients. Let me know if I can help be a resource for any hard to place worker's comp/payroll not being accepted on the standalone markets. I can still get you compensated so you can retain on your book!

Have a great one!

Re: Workers comp ghost policy

Posted: Fri Sep 18, 2020 4:50 pm
by Swymmer
I know this is late coming into the discussion...
My agency routinely issues a ghost policy on self-employed logging clients like one-man timber fallers. They do not want to pay 25% to 50% of their income to WC just so they can put their boots on and go to work each morning. that said, we then offer and usually sell them a disability income, medical insurance and life insurance package that is appropriate to their needs. If it is a young single guy with no debt but a pickup truck payment... we go heavier on the disability income coverage. If a family man with a mortgage, then maybe quite a bit of life insurance is also included. Each person is different.
The real reason for the Ghost Policies is that the primary contractor these guys are cutting for needs a certificate to show his carrier at audit time. If he doesn't have the COI on file he gets to pay that 25% - 50% of what he paid the sub!
We also do lots of WC coverage for firms with employees... the Ghost Policies are just one tool in the toolbox.

Re: Workers comp ghost policy

Posted: Wed Sep 23, 2020 9:48 am
by mccluney
Ghost Insurance Policy. I do not get it!! if you are issuing a COI, who are you listing as the insurance carrier. If the General Contractor is relying on your COI as proof of insurance, what happens if your sole proprietor hires an employee say 2 months later. You the agent are committing fraud. Your E&O policy will not cover fraud. You will probably lose your insurance license and will no doubt be responsible for claims under the ghost policy should either the sole proprietor or his worker become injured. In CA sole proprietors can be insured under a WC policy.

Re: Workers comp ghost policy

Posted: Wed Sep 23, 2020 11:30 am
by wariline
I think the ghost policy referred here means a WC policy without, and not expecting any actual employee/payroll. It is simply to meet contractual requirements.

Re: Workers comp ghost policy

Posted: Mon Oct 26, 2020 9:35 am
by Mikerob7
BTIS & NCCI are the only options I've seen for a ghost policy

Re: Workers comp ghost policy

Posted: Fri Oct 30, 2020 9:47 am
by Swymmer
Continuing on with the conversation... a "ghost policy" is really a normal work comp policy with no reportable payroll at the time it is issued. These accounts are audited regularly to see if there are any changes to the payroll that need to be addressed. Many of them are "test audited" during the plan year. The carriers I work with are fine with excluding the sole proprietor or corporate officers, and in many states the regulations state that the "owners" must go out of their way to request to have the coverage, that they are all initially excluded!
Also, the states know that "owners" are able to adjust their income, often times using depreciation and legitimate business expenses to show little or no taxable income... and other times they will have a terrific income year and make millions... so the "system" arbitrarily assigns the owner / officer / LLC member a pre-determined salary when applying to be included. This factor is different for each state.