by Ryan Sussman on Sep 23, 2015
The term “Ghost Policy” is referring specifically to a Workers Compensation Insurance policy in which the owner or officers have elected to reject or exclude themselves from coverage AND have no employees or uninsured sub-contract labor (non-employed labor.) This type of policy is most prevalent in the Construction Industry.
Why am I required to have this if I am covering nothing?
Here is a good example of why:
Joe General Contractor hires George sub-contractor to install lighting fixtures in a home he has contracted to build. George decides that due to his current schedule, he needs to hire an assistant Adam to unpack and assemble the light fixtures onsite and he will do the installing.
Adam gets injured on the jobsite…. Here are the scenarios:
If George has a Workers Compensation Insurance Policy (Ghost or otherwise,) that policy will be responsible for Adam’s injuries if he is hurt on the jobsite (subsequently the Gross Pay to Adam is treated as payroll for the sake of calculating the Workers Comp Premium Audit at year end.) ** We will cover premium audits in a later article**
If George has no policy, there is a way for him to reject his rights of recovery under Workers Comp Statutes in South Carolina. However, he cannot escape the rights Adam has if he has not also rejected his rights. Under this scenario, the General Contractor and/or Owner of the project can be held responsible for injury.
If the General Contractor has a Workers Compensation Policy, his policy will cover Adam’s injuries, but he/she will face additional scrutiny on all of their subcontracts and may face having to pay Workers Compensation Premiums for all or a portion of their subcontract labor.
If the General Contractor does not have a Workers Compensation Policy, then they run the risk of having to pay for the injury “out of pocket” OR by activation of their bond held by the Licensing Authority in SC. A Bond allows the State to liquidate the General Contractor’s PERSONAL assets in order to satisfy the claim.
If the General Contractor has no Workers Compensation Policy, does not agree to pay the claim, and has no bond to call… Then ultimately it will fall on the property owner to pay for Adam’s injuries.
These are the scenarios faced by those hiring you to work for them. What you must realize is that you are responsible for all workers “down the line” from you. Subs of subs of subs of subs – can ultimately destroy your business and personal finances. The Workers Compensation “Ghost Policy” assures the people that are hiring you that there is insulation between your work and the viability of their company.
We welcome questions and comments.
info [at] lamplighterinsurance [dot] com