Monday, August 25, 2014

A Beverage You Cannot Drink

I was privileged to sit through a discussion of workers' compensation issues and challenges this month. I learned a new term, the "ghost policy." When you sit around with workers' compensation experts, you can learn a great deal by listening carefully. I have had the benefit of learning about workers' compensation and its adjudicatory processes from some of the best in the business. Despite this great opportunity, I am nonetheless sometimes surprised by an unfamiliar term or concept, in this instance "ghost policies."

A "ghost policy" is an insurance policy that does not provide any insurance coverage. I know, that sounds like a beverage you cannot drink or ladder you buy that has a warning label "do not climb." The use of "ghost policies" is not limited to any particular industry or business, but there are those who have expressed a belief that the practice is more common in the construction industry. 

According to, "This type of policy is typically purchased by subcontractors who do not have employees and do not want the financial burden of including themselves for coverage.  A ghost policy typically satisfies the requirements of general contractors.  Not all states allow for ghost policies." Thus it is a policy that perhaps satisfies the legal requirement that one have a workers' compensation policy, but does not fulfill the requirement that there actually is coverage when an accident occurs.

In Florida, when a subcontractor turns out to be uninsured, the law places responsibilities for injuries on the general contractor. These circumstances can find their way to the hearing room for determination. 

These cases generally involve an injured person and her or his need for benefits and treatment. The disputes in many of these cases are not about the benefits, they are about who will pay the benefits. 

Is the injured person a subcontractor, an employee of a subcontractor, an employee of the professional employment organization hired by the subcontractor, an independent contractor under the law, or the statutory employee of the general contractor? Hours can be consumed sorting the facts, circumstances, contracts and law that lead to the answers of who will be responsible for this person's injuries. 

Some states have uninsured employer funds, another method of providing benefits when some business is not insured. In these states, it is likely of less import to determine who will be liable due to the lack of coverage for some subcontractor. If that uninsured contractor is found responsible, this fund steps in to provide the benefits. Those who support these processes laud the seamless transition to fund coverage and the benefit provision for the injured party. 

States require employers to have workers' compensation insurance. There are requirements that such coverage is in place in order to bid for jobs, or otherwise participate in certain industries. There are those who satisfy these requirements through outright fraud, such as purchasing false insurance certificates or forging proof of insurance.

North Carolina apparently is struggling with another inappropriate solution right now, the "ghost policy." One news outlet notes that these policies are profitable for insurance companies, because they charge for the subcontractor to have a workers' compensation (ghost) policy, but the policy provides absolutely no benefit or coverage. The company collects a premium essentially for doing the administrative work of issuing a policy so that the subcontractor has a piece of paper to prove that she/he "has a policy." 

The subcontractor herself/himself is exempted from coverage under the policy. No payroll is calculated as the subcontractor appears to have no employees. Because the policies did not cover any real risk, there has been debate over the practice of selling them in that state. 

In trying to better understand these policies, I have seen the term "ghost policy" mentioned in reference to the construction industry and trucking industry. I have seen the policies variously described as "necessary" and also as "employer fraud" and a "sham." I think it safe to say that there are different perspectives as to the existence and use of these tools in the marketplace. 

Does the ghost policy solve the dispute when someone is injured and the debate arises as to who was the actual employer? It seems it would not, as the subcontractor with such a policy would not have reported their worker as an employee to issuer of the ghost policy. That ghost policy carrier would logically deny coverage for that injured worker, and the search for coverage through the statutory employer would continue to be a point of litigation, at least in the Florida construction industry model. 

I have seen references to various states out there on the Internet. The "ghost policy" is interesting. Is this a subject that is affecting Florida significantly? I have heard the praise of uninsured employer funds that several states appreciate as the more seamless solution to providing benefits to those employees who find themselves in these circumstances. Is that a better solution to the conundrum in which some injured employees find themselves?

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