The 1099 Roofing Crew and the Unguarded Skylight
Prairie Sky Roofing, Inc. is an Illinois corporation with 14 full-time employees and $1.6 million in annual payroll. It carries a standard NCCI workers compensation policy with statutory Part One benefits and Part Two employers liability limits of $1,000,000/$1,000,000/$1,000,000. Item 3.A lists only Illinois. For peak season, Prairie Sky engages Summit Crews, a group of six roofers who invoice by the job, provide their own hand tools, set their own hours, and are paid on Form 1099. Prairie Sky does not verify whether Summit carries workers compensation. In August, a Summit roofer falls from a two-story roof and fractures his pelvis. He files a workers compensation claim and also sues Prairie Sky in tort, alleging that Prairie Sky's project manager directed him to work near an unguarded skylight. Summit has no workers compensation policy. Prairie Sky's experience modification is 0.88, and its premium audit is pending.
1. Is the injured Summit roofer an employee of Prairie Sky for workers compensation purposes? Explain the factors that drive the answer.
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The Form 1099 label does not decide the issue. Illinois workers compensation uses a right-to-control test and also looks at the relative nature of the work. Facts favoring independent-contractor status: the Summit roofers set their own hours, provide their own hand tools, and invoice by the job rather than by the hour. Facts favoring employee status: Prairie Sky's project manager directed the injured roofer to work near the unguarded skylight, which shows control over the manner and location of the work; roofing is Prairie Sky's core business, not a peripheral service; and the crew worked on Prairie Sky's project under its supervision. If the roofer is deemed an employee, Part One pays statutory benefits. If he is a true independent contractor, Part One does not. The claim is likely to be contested, and the pending premium audit may reclassify Summit's payroll.
2. How do Part One and Part Two of Prairie Sky's policy respond to the injury and the tort suit?
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If the roofer is an employee, Part One pays statutory workers compensation benefits and has subrogation rights against any third party. Part Two employers liability responds to the tort suit for the employer's legal liability, subject to the $1,000,000 each-accident limit; defense costs are paid in addition to the limit under the standard form. Part Two does not cover liability assumed under contract or punitive damages. If the roofer is an independent contractor, Part Two does not apply because he is not an employee. Prairie Sky's commercial general liability policy would then need to be examined; the CGL employer's liability exclusion may not bar an independent contractor's claim, so the CGL could respond to Prairie Sky's vicarious liability. The two outcomes are very different, which is why the employment-status analysis matters.
3. What should the agent have recommended before Summit began work, and what should happen now at the premium audit?
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Before work began, the agent should have obtained a certificate of insurance from Summit showing workers compensation coverage, a waiver of subrogation in Prairie Sky's favor, and an additional-insured endorsement where appropriate. If Summit could not provide coverage, the carrier could add an uninsured-subcontractor endorsement or a labor-contractor endorsement, which charges premium based on subcontractor payroll. Prairie Sky should also use a written subcontractor agreement with indemnity and insurance requirements. At the audit, if the roofer is reclassified as an employee, Summit's payroll will likely be added to Prairie Sky's premium basis, increasing premium. The incurred loss will also affect the experience modification at the next valuation, so the 0.88 mod may deteriorate.