GCs in Mass: Comp's Not-So-Exclusive Remedy

Thursday, May 26, 2011 | 0

By Jon Coppelman
Lynch Ryan & Associates

Henry C. Becker Custom Building Limited was doing some construction work in Newburyport, Mass. They hired the Great Green Barrier Co. to do some waterproofing. They apparently did not ask for a certificate of insurance; Great Green Barrier did not carry workers' comp for their employees. There was an explosion on the jobsite. Timothy Wentworth, an employee of Great Green Barrier, was killed; his son, Ezekiel, was severely injured. As the employees of an uninsured subcontractor, the Wentworths collected workers' comp through Becker's insurance company, which paid out substantial lump-sum settlements to each.

Then the Wentworths sued Becker as a third party. Becker objected: Comp, after all, is an exclusive remedy. Once the Wentworths collected comp benefits, they should be precluded from any other remedies. Becker sought and won a summary judgment dismissing the lawsuit.

The case wended its way to the Massachusetts Supreme Judicial Court, where the justices determined that the summary judgment was improper: the exclusive remedy provision of the comp statute applies only to employees. The Wentworths were not employees of Becker, but of Great Green Barrier. Becker, in other words, was a third party and thus, despite the payment of comp benefits, was not immune from lawsuit.

Compounded Liabilties

Becker is going to pay and pay again: first, under their workers' comp policy, the payroll for Great Green Barrier employees will have been added to the Becker payroll in the premium audit; that's the chump change. Then, the substantial losses for the Wentworths each likely exceeding the state rating point limit of $175,000 will be added to the experience modification calculation for Becker over a three-year period. That's serious bucks (but nowhere near the financial hit taken by Becker's comp carrier).

Then, given this ruling, the Becker company is vulnerable to a lawsuit, which is likely to result in additional payments to the Wentworth family. The Massachusetts Supreme Court has made it crystal clear: general contractors are liable for the comp costs of uninsured subs, but the acceptance of comp benefits does not preclude a third-party lawsuit.

The lesson for general contractors should be clear: proper risk transfer must be a fundamental part of the operation. Make sure subcontractors carry workers' comp: require that any and all subs produce a certificate of insurance, with the general contractor named as an additional insured. Track the expiration dates on the certificates and do not allow subs on the job site unless they have shown that comp (and liability) policies are in place.

Henry C. Becker Custom Building has learned about risk transfer the hard way, an expensive lesson indeed. May a word to the wise be sufficient.

WorkCompCentral subscribers may download the high court's opinion by clicking the case title in the sidebar.

Jon Coppelman is a principal with Lynch Ryan Associates, a Massachusetts-based employer consulting firm. This column was reprinted with his permission from the firm's blog, http://www.workerscompinsider.com