WORKERS' COMPENSATION INSURANCE

By Adrian J. Adams, Esq., Adams & Kessler LLP

Q. Our association does not have any employees. Do we need  workers' compensation insurance?

A. Yes. If the board hires a painter, landscaper, roofer, plumber, part-time handyman, etc., the association could be liable for employment-related injuries even though the vendors are independent contractors.Unlicensed Vendors. By law, if a board hires an unlicensed contractor, the association automatically becomes the employer of the injured worker. State Compensation Ins. Fund v. Workers’ Comp. Appeals Board (1985) 40 Cal.3d 5. This is true even if the contractor misrepresented the fact that he was licensed and insured.

Uninsured Vendors. Without workers' compensation insurance, there are no limits on the damages that may be claimed by an injured employee, including claims for pain and suffering. The association could be liable and the membership could face large special assessments to pay the damages. With insurance, the employee's claims are limited and the loss is paid by insurance.

Protection Against Loss. To avoid unexpected special assessments, boards should (i) purchase workers' compensation insurance, even if the association does not have employees and (ii) make sure their vendors are licensed and insured (always require a certificate of insurance prior to the vendor coming onto the premises).

Q. Will the management company's insurance cover the association?

A. No. Workers' compensation only covers the management company.

Q. If the board is sued for NOT carrying workers' compensation insurance, are directors protected by Directors & Officers liability insurance?

A. No. If directors are sued for failing to purchase insurance, most D&O policies

specifically exclude claims for being under-insured.

Q. If a board member is injured, is he/she covered by the association's workers' compensation policy?

A. No. Volunteers are not considered employees. Under Labor Code §3352(i) ["Any person performing voluntary service for a public agency or a private, nonprofit organization who receives no remuneration for the services other than meals, transportation, lodging or reimbursement for incidental expenses" is excluded from the definition of "employee".] Moreover, most insurance carriers specifically exclude officers and directors.

Q. Can directors be declared employees and added to the coverage? 

A. Yes. Labor Code §3363.6 allows the association to make volunteers "employees", provided the board does so in writing prior to the injury. Unfortunately, if the board does, the association's workers' compensation premiums will increase significantly (50%-60% increase).

Adrian J. Adams, Esq., is a Managing Partner of the law firm of Adams & Kessler LLP