Workers’ Compensation Insurance in the Construction Industry: Best Practices

The Bureau of Labor Statistics named construction work as one the top ten professions for workplace accidents in 2019. Since construction sites buzz with activity, no matter how many safety policies are in place, accidents are bound to happen. 

Workers’ Compensation insurance covers work-related injuries, disease, and fatalities with disability benefits, missed wage replacement, medical expenses, funeral expenses, and death benefits. 

It is governed by state law and is required of all employers.

What is typically excluded?

Common exclusions include:

  • Bodily injury or property damage subject to the Longshore and Harbor Workers’ Compensation Act
  • Fines or penalties imposed for violation of federal or state law
  • Injuries occurring outside of the continental United States, its territories or possessions, and Canada
  • Intentional acts
  • Punitive damages
  • Professional liability-related damages that arise from coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, or any personnel practices, policies, or acts and omissions

What if subcontractors are involved?

When hiring subcontractors, confirm they have Workers’ Compensation insurance in place by obtaining copies of their Workers’ Compensation policy endorsements. If not, your firm could be held responsible should one of their team members get hurt on your project.

What are the implications of not having coverage?

First, without coverage, your employees could sue you for any work-related injury or illness to help pay for their medical costs and lost wages. Second, because it is mandated by law, in many states, failure to have Workers’ Compensation insurance is a criminal offense with steep daily fines and possible jail time. Finally, and most importantly, you would have a very hard time winning bids without it. 

Each state has different rules for different classes of business: corporations, LLCs, and sole proprietors. They also have different rules for temps, interns, and independent contractors. 

In today’s litigious environment, it is utterly important to determine your specific needs with your broker. 

How does a policy work and how long should you carry coverage?

Workers’ Compensation premiums are based on company payroll and a predetermined rate for your class of business established by your state’s rating bureau.  At the end of a policy period, the insurance carrier will perform an audit based on your projected and actual payroll. 

If an employee is hurt during a work-related incident, you would file a claim with the insurance company to handle any medical expenses and lost wages. If you suspect a fraudulent claim, the insurance company can set up an investigation on your behalf. 

Safety is paramount for contractors and having industry-specific programs in place can help with pricing. Carriers look at a 5-year window of claims history to determine your cost. If you can show that you have implemented procedures or safeguards to prevent past claims from occurring again, it will show prospective carriers a proactive approach to your company safety culture. 

Coverage should be renewed annually. 

How do I choose the right amount of coverage? 

Because Workers’ Compensation insurance is required, there are no coverage limits. Additional policy endorsements may be required for specific jobs. 

What happens if your business situation changes?

Since Workers’ Compensation policies are based on payroll, if you add staff and your payroll grows your premiums with be larger.