Under Georgia Law, a principal, intermediate, or subcontractor can be held liable for compensation to any employee injured
Under Georgia Law, a principal, intermediate, or subcontractor can be held liable for compensation to any employee injured while employed by a subcontractor that did not maintain insurance. O.C.G.A. § 34-9-8 (a). Under this statute, the principal contractor then becomes a “statutory employer” under the Georgia Workers’ Compensation Act. Wright Assocs. v. Rieder, 247 Ga. 496 (1981). The purpose of this statute is to encourage statutory employers to require subcontractors to carry workers’ compensation insurance. Franks v. Avila, 200 Ga. App. 733, 409 S.E. 2d 564 (1991).
There are many times I have spoken with an employer representative of a statutory employer who throws his or her hands up in the air asking, “How could this be?” when they never had an actual employment relationship with the injured worker. It can be difficult coming to grips with the fact that your business and workers’ compensation carrier are being held liable for injuries suffered by an individual who was not even your employee. I have also seen instances in which a principal contractor was informed by a subcontractor they had insurance and were even shown certificates of liability insurance reflecting the same only to later find out the certificates were not valid once they are forced to pay workers’ compensation benefits as a statutory employer. This means contractors are expected to take their due diligence one step further by calling to verify if a certificate of insurance is valid if they do not want to open themselves up to liability as a statutory employer.
Once a statutory employer is held liable, however, the Act still allows for them to recover some or all of their losses. The Act allows for them to recover “from any person who, independently of this Code section, would have been liable to pay compensation to the injured employee or from any intermediate contractor.” O.C.G.A. § 34-9-8 (b). These provisions allow the statutory employer to obtain reimbursement from the sub-contractor for the payments the statutory employer had to make. Therefore, the Act does provide some recourse for the statutory employer.
Even if a formal claim is not filed against the subcontractor or immediate employer in a statutory employer situation, they are still not immune from the statutory employer’s ability to recover. The Georgia Court of Appeals held a formal claim does not have to be instituted against the immediate employer before the general contractor is entitled to recover under O.C.G.A. § 34-9-8 (b). Travelers Ins. Co. v. Southern Elec., Inc. 209 Ga. App. 718, 434 S.E. 2d 507 (1993).
In Travelers, the workers’ compensation carrier of a statutory employer brought an action to recover under O.C.G.A. § 34-9-8 (b). The subcontractor agreed to perform some electrical work for the general contractor on a project. Id. at 508. The subcontractor represented to the general contractor that they had workers’ compensation coverage. After one of the subcontractor’s workers was seriously injured in an accident that was undisputedly work related, the contractor learned the subcontractor actually did not have workers’ compensation insurance. Id. The subcontractor was aware of the injury and assisted the general contractor in their investigation. Id. Following an investigation of the accident and becoming aware the subcontractor did not have insurance, the general contractor approved coverage and began providing benefits. Id. They commenced benefits even though the injured worker never instituted proceedings against their subcontractor/immediate employer. Id. After providing benefits, they then brought the suit for indemnification against the subcontractor. Id.
The Court stated, “To require the claimant in such a case to obtain a judgment against his immediate employer and to expend resources attempting to collect it in order to establish his right to compensation from the statutory employer would frustrate the remedial purposes of the Act.” Id. at 509; citing Franks at 734. The Court also reasoned the immediate employer did have notice of the accident, participated in the investigation, and could point to no defenses that could have even been arguably raised as additional reasons why a formal claim should not be required as a condition precedent to the statutory employer’s right to indemnification. Id. at 509.
Once it has been established a statutory employer has the right to indemnification from the immediate employer, other issues can then arise as far as collecting from the immediate employer. If an immediate employer claims to be insolvent or close to bankrupt, one may need to turn an Award from the State Board into a judgment and go to Superior Court to enforce it through garnishing a bank account or wages.
There have also been instances in which a penalty and assessed attorney fees have been instituted when an immediate employer fails to procure insurance. Under O.C.G.A. § 34-9-121, every employer subject to compensation provisions is required to maintain insurance. Under Franks v. Avila, the Georgia Court of Appeals reversed a decision by the State Board and Superior Court that held a statutory employer, along with the immediate employer, was responsible for these penalties when the immediate employer failed to fulfill their legal obligations of maintaining insurance. Franks at 566. The Act specifies under § 34-9-126 (b) that an employer who “refuses or willfully neglects” to provide evidence of his compliance with O.C.G.A. § 34-9-121 shall be found guilty of a misdemeanor and may be required to pay a penalty in the amount of 10 percent of the benefits awarded, plus reasonable attorney fees. Id. In the case of Franks, there was no suggestion the statutory employer refused or willfully neglected to maintain insurance, and there was nothing in the statute that found them vicariously liable for the immediate employer’s failure in that regard. Keeping all of that in mind, it is apparent that the direct employer is who is going to pay the ultimate price in failing to procure insurance.