Workers comp ghost policy
Posted: Thu Jan 14, 2016 10:55 am
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 -
http://ramsaylawfirm.com/beware-of-work ... -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.
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 -
http://ramsaylawfirm.com/beware-of-work ... -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.