It took more than 2 ½ years but an appeals court has finally decided whether a general contractor’s workers’ compensation policy should cover a subcontractor’s injured workers.
Here’s a quick rundown of the facts in the case, which unfolded in Arizona:
In the summer of 2016, a company called Harte’s Contracting Services, owned by Justin Harte, entered into a contract to build a new church for Heart Cry Church, located about an hour southeast of Phoenix.
Harte happened to be a member of the church so had agreed to build it at cost.
About a dozen subcontractors were hired to perform the work, including Vasquez Construction, which was owned by Teodulo Rafael Vasquez and was brought on to handle the framing.
Rafael’s crew began its work in mid-September and anticipated wrapping up in four to six weeks. Instead, in early October, a roof truss collapsed. Six Vasquez Construction workers were injured when they fell to the ground.
Harte at that point became aware Rafael was unlicensed and uninsured. The Harte’s Contracting administrative assistant who typically checks all subcontractor credentials apparently did not do so in Rafael’s case because of a family emergency.
In any case, Harte’s and the church provided the injured workers with food and wages. Three of the workers also signed a release of liability when asked to do so.
Despite that, all six filed workers’ compensation claims against Harte’s, Rafael or both. After their claims were denied, the workers appealed.
An administrative law judge sided with the workers, finding that while Rafael was their direct employer, Harte’s was their statutory employer.
The judge based his decision on the idea that Harte had the right to exercise control over the work being done by the subcontractor’s employees. He also found that framing work was a “part or process in the trade or business of Harte’s Contracting Services.”
End of story, right? Wrong. Harte took the case to the Arizona Court of Appeals, which agreed to review the case.
It looked at two questions: first, whether a statutory employer relationship did, in fact, exist and, secondly, whether the subcontractor’s work was part and parcel of Harte’s regular business.
Arizona courts, it acknowledged, have recognized that in the context of construction contracts, the general contractor necessarily retains the right to exercise general supervision over a project including scheduling work and ensuring job-site safety.
However, none of that constitutes control over the subcontractor’s work nor does it negate a subcontractor’s status as an independent contractor, the appeals court said.
Moreover, Harte’s did not employ any of its own workers to do framing and it did not tell Rafael’s framers what to do – as confirmed by Rafael’s own workers – the court said.
On the second question, the court noted that not only did Harte’s not ordinarily do any framing work, but that it lacked the skilled manpower or tools to do so.
Consequently, the appeals court overturned the judge’s decision, relieving the contractor’s workers’ compensation insurance policy from having to cover the workers’ injuries.
We’ll end with one disclaimer: an appeals court decision in one state does not guarantee similar decisions in every state.
But the moral of the story? Double-check your subcontractors’ insurance policies. Not only will doing so spare you and your insurance carrier from paying claims on their employees, but you’ll save the time and hassle of having to deal with drawn-out court battles.
George Whitten is an Insurance Advisor at CCIG. Reach him at George.Whitten@thinkccig.com or at 720-330-7940.
CCIG is a Denver-area brokerage with personal and business insurance clients nationwide. We do more than make sure you have the right policy. We also help you lower your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.Back to Resources