August 13, 2013 Jon Crain, Armstrong|Robitaille|Riegle Homeowner Tips
As you may know, it has been a common suggestion for many years that associations may want to consider carrying worker’s compensation coverage. This is not necessarily to provide worker’s compensation coverage for board members or committee members. The California Labor Code 3363.7 seems to clearly indicate that volunteers of a non-profit private corporation are not considered employees. The reason that many of the associations were concerned about carrying worker’s compensation coverage was the concern that injured employees of an unlicensed/uninsured sub-contractor may become the responsibility of the Association. While this seemed to be a far-fetched possibility, both attorneys, property managers and our own firm have recommended from time to time that an association should consider this as a possibility and make their own decisions as to whether or not worker’s compensation insurance should be acquired.
Just recently a case involving one of our associations has come to mind and it has caused us to shift our attitude from simply recommending that associations consider carrying worker’s compensation to strongly suggesting that no association should be without it. The gist of the lawsuit is that a licensed and insured landscape contractor was asked to go up into a tree to remove a tree house that had been placed there. In taking down the tree house, one of the employees on the ground was injured and rendered a partial quadriplegic. The worker’s compensation carrier for the licensed and insured landscape gardener began to make payments; however, they have subsequently filed a lawsuit against the association and the management company for subrogation of their worker’s compensation expense.
The basis for their suit is Labor Code 2750.5
The Insurance Company is claiming that the act of removing the tree house was an act of demolition for which this landscape contractor was not licensed, and therefore, the association and/or the management company may be responsible for the injuries to this employee. Most legal scholars, and ourselves, believe this a “stretch” of the Labor provision, as the landscape gardener was a licensed and insured contractor. Secondly, there will be a debate; I am sure, as to whether or not the removal of some plywood from a tree constitutes demolition rather than a landscape function. I am sure that the removal of a dead tree branch from the top of a tree would have been considered landscaping instead of demolition.
The problem with this recent lawsuit isn’t that it is a real stretch of the Labor Code, but rather that an association and management company have now been sued. In this case, the general liability carrier denied liability coverage arising out of worker’s compensation related injuries or occupational injuries; accordingly, there was no liability defense coverage for the association. That being be the case, the association’s basic protection would have been provided by a minimum premium worker’s compensation policy. In this particular instance, the association mentioned in this situation will now be fully responsible without the aid of insurance for all defense costs for this lawsuit and if found responsible, will be required to put forward the workers compensation benefits for this severely injured “employee.”
Accordingly, without a workers compensation policy, the association could conceivably incur hundreds of thousands of dollars in defense costs, let alone, the possibility of having to actually pay compensation benefits if found responsible under this Labor Code provision.
Outside of the above example, please note that as we have indicated to all of our clients over the years, there is now a HUGE liability placed upon associations and property managers, if they hire an unlicensed and uninsured contractor. In the case involving the association above, if the landscape contractor had been unlicensed and uninsured, there would be no question that some liability could be imposed upon either the association or the management company for injuries rendered to an employee of the unlicensed and uninsured contractor.