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A recent California Court of Appeals case, Heiman v. Workers'
Compensation Appeal Board, has shed new light on the potential liability
Associations and their managers face when contracting for on-site
service and repair. Specifically, it highlights the importance of
every Association, obtaining a workers' compensation policy.
For those of you unfamiliar with the case detail, the "cliff
notes" version is this - Pegasus Management (Heiman), the manager
for The Montana Villas Homeowners Association, hired the Hruby Company
on behalf of the association to install rain gutters on the Association's
common area. An employee of Hruby was electrocuted and seriously injured
on the job. Hruby was uninsured (and unlicensed), so the injured worker
pursued the Association AND its management company for workers' compensation
benefits. The absence of a policy to provide benefits for the injured
worker left the Workers' Compensation Appeals Board assigning payment
obligation equally to the contractor (Hruby), the Association (Montana
Villas), and the management company (Heiman/Pegasus Management).
The obvious first recommendation is to hire only licensed and properly
insured contractors. While professional managers are generally very
good about that, it is important for Association Board Members to
draw a line in the sand when it comes to this issue. Do not allow
any type of contract for on-site services without verification of
proper licensing and appropriate insurance for Workers' Compensation
and for the work performed.
The case also highlights the importance of the Association having
a "backstop" if the Workers' Comp policy carried by the
contractor fails. The only way to be absolutely certain that your
association will not bear the risk of a contractor's insurance failure
is to obtain your own workers" compensation policy.
In addition to the exposure addressed in this case, the Association
is at risk of owing workers' comp benefits to volunteers who perform
"work" on behalf of the Association. Imagine these scenarios:
An association member volunteering at a "Saturday Community
Clean-up Day" is injured, or a Board Member slips and falls
during a site inspection. While the General Liability (GL) policy
provides "bodily injury" coverage, bodily injury to an
"employee" is specifically excluded so the exposure can
be pushed to a workers' compensation policy. A volunteer performing
work on behalf of the Association could easily be construed as a
"employee" by the GL carrier, especially if the injuries
are significant. If the Association carries the right type of workers'
compensation policy, this exposure can be covered too.
This case demonstrates that simply being diligent about insurance
and licensing verification for contractors that provide on-side
service for your association is no longer enough. While those are
by far the most important first steps to protect your Association,
you must insist that your Association have the backstop of its own
Workers' Comp policy for "if any" and volunteer coverage.
Garth Leone
Managing Member, CAIS, LLC |
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