The Subcontractor Who Said He Was Exempt
Hudson Builders LLC is a Westchester general contractor with eight employees, a New York workers' compensation policy, and a CGL policy at $1 million per occurrence / $2 million aggregate. Hudson subcontracts its framing to "R&J Framing," a sole proprietor working alongside one helper, who told Hudson, "I'm a sole proprietor, so I'm exempt from workers' comp," and produced no policy. R&J's helper falls from a ladder, runs up $180,000 in medical bills, and sues Hudson under Labor Law §240(1). Hudson's carriers also want to discuss the premium audit. Separately, Hudson's managing member, who filed a valid election to be excluded from the workers' compensation policy, was injured on a site last month.
1. Is R&J right that he is exempt, and who pays the helper's medical bills?
Read the worked answer
Half right - and that half does not cover the helper.
- In New York, a sole proprietor (like a partner or an electing LLC member) is not required to carry workers' compensation for himself. But an employer with even one employee must cover that employee. R&J has a helper, so R&J is an uninsured employer.
- Under New York's construction-industry contractor liability rules (WCL §56 and the related doctrine), the general contractor on an uninsured subcontractor's work can be held liable for the injured worker's workers' compensation benefits. Hudson's carrier pays first.
- The audit then bites: the carrier will charge Hudson premium for the uninsured subcontractor's payroll, and Hudson's own experience modification and loss record absorb the claim.
- Hudson's recourse is contractual - indemnity and additional-insured terms in the R&J subcontract, if they exist and are enforceable.
2. Does Hudson's CGL policy respond to the §240(1) suit by R&J's helper?
Read the worked answer
Generally yes - this is the coverage the CGL exists for.
- The employer's liability exclusion bars bodily injury to an employee of the insured. The helper works for R&J, not Hudson, so the exclusion does not apply on its face.
- The workers' compensation exclusion bars liability under a workers' compensation law, not tort damages. A §240(1) claim is tort liability for a gravity-related hazard, so it survives.
- The carrier therefore owes a defense - which is often the larger cost - and indemnity up to the $1 million per-occurrence limit, subject to the $2 million aggregate and to any exclusion for liability assumed under contract.
- Watch the interplay: the WC carrier's lien against the tort recovery, and whether a subcontract required Hudson to be named as an additional insured (if it did not, Hudson eats its own defense costs inside the limit).
3. What is the position of the excluded managing member who was hurt on site?
Read the worked answer
He has almost certainly excluded himself out of both policies.
- A member or officer who files and has accepted an exclusion election waives workers' compensation benefits. The carrier owes no medical or indemnity benefits for his injury; his remedy is individual health coverage or a personal accident policy.
- The CGL will not fill the gap: bodily injury to an employee of the insured arising out of and in the course of employment is excluded, and an owner-member working on the site typically fits that description.
- What may remain is a claim against a third party - another contractor, a property owner, an equipment manufacturer - where the member is injured by someone else's negligence; the exclusion does not bar his own tort claim.
- Practical advice: revisit the election with the carrier (revocation is possible with carrier consent), and confirm the member carries separate disability/health coverage before the next job.