Nine Roofers on 1099s and a $210,000 Back Injury
Brick & Beam Roofing is an Oklahoma corporation with 14 employees and a workers' compensation policy carrying a 1.18 experience modification. For three years it has treated nine roofers as 1099 subcontractors: they work only for Brick & Beam, use the company's ladders, trucks, and nail guns, are on a company-set schedule, are paid weekly, keep no business license, and carry no workers' compensation insurance of their own. The company collects no certificates of insurance and reports none of their payroll. One of them, Luis, falls from a two-story roof and breaks his back. Medical bills are $210,000 and he will be off work for at least a year. The owner says Luis is not on the policy and "isn't our employee."
1. Determine whether Luis is an employee for workers' compensation purposes and state what the policy will do with the claim.
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Luis is an employee, and the 1099 does not change that. Workers' compensation law looks at the substance of the relationship, not the tax form. The facts line up almost perfectly on the employee side:
- Right to control - company schedule, company methods, company supervision.
- Tools and equipment - all provided by Brick & Beam; a genuine roofing subcontractor brings ladders, guns, and a crew.
- Exclusive service - they work for no one else; a real contractor has other customers.
- Method of pay - weekly wages, not per-job contract pricing.
- Business infrastructure - no license, no liability insurance, no employees of their own, no separate business identity.
- Construction-specific rule - in the construction trades, a contractor that hires a subcontractor generally remains responsible for workers' compensation unless the subcontractor actually carries coverage and can prove it. The missing certificate is the whole ballgame.
What the policy does: the carrier treats Luis as a covered employee of Brick & Beam, pays medical and indemnity benefits, and then charges premium for the unreported payroll at the applicable roofing classification - a high-hazard rate. Whether the policy was "supposed" to cover him is irrelevant; coverage follows employment, and the carrier's remedy is premium, not denial.
2. Quantify the premium and experience-modification consequences and outline how the audit will unfold.
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The audit is retroactive. The carrier will examine 1099 payments, checkbooks, and contracts, reclassify the nine roofers' remuneration as payroll, and charge premium for the current and prior policy periods (subject to the policy's audit window and any fraud or misrepresentation provisions). At a roofing class rate - often several dollars per $100 of payroll, plus increased limits - nine full-time roofers can add more premium than the entire reported payroll of a small contractor. Uninsured subcontractors are commonly charged as if they were employees even when they do carry their own coverage, unless a valid certificate is on file.
The modification is the bigger number. A $210,000 incurred loss flows into the experience mod, which is computed from losses compared to expected losses for the classification. A claim several times the expected loss for a 14-person roofing operation will push the mod well above 1.18 for three years, and the mod multiplies every dollar of premium - including the premium generated by the audit. The compounding effect is what sinks contractors: audit premium plus a debited mod on a larger premium base.
Forward-looking options: require and verify a certificate of insurance before every sub walks on a roof (name the contractor as additional insured where the contract requires it), use the carrier's subcontractor exclusion or subcontractor credit endorsement only where genuinely earned, consider a staffing arrangement, and verify payroll annually against 941s and 1099s.
3. Luis wants to sue Brick & Beam for negligence in addition to collecting benefits. Evaluate his options and identify the exposure the company should be insuring.
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Against Brick & Beam, the exclusive remedy doctrine bars the tort suit. Workers' compensation is the exclusive remedy against the employer for work-related injury; benefits are paid without regard to fault and the employer's tort liability is extinguished. That is the trade the statute makes.
But the exclusive remedy is narrow in practice, and the exposure is real:
- Third-party suits. Luis can sue the building owner, the general contractor, or the manufacturer of the ladder or harness. Those parties will typically tender defense and indemnity back to Brick & Beam under the subcontract's indemnity and insurance clauses, and the exclusive remedy does not bar a contractual indemnity claim or a contribution claim in many circumstances. This is why upstream contracts demand additional insured status and waivers of subrogation - and why the subcontractor must read them before signing.
- Employer's liability (Part Two of the policy). It responds to suits by employees or their survivors that fall outside the exclusive remedy - third-party-over actions, dual-capacity claims, and consequential injury claims - at limits separate from Part One. Confirm the Part Two limits are meaningful; they are often bought at $100,000 when the contractual indemnity exposure is in seven figures.
- Intentional acts and gross violations sit outside the exclusive remedy and outside coverage; a serious citation for failing to provide fall protection also creates OSHA exposure independent of the comp claim.
Recommendation: verify Part Two limits, require certificates from every subcontractor naming Brick & Beam as additional insured with a waiver of subrogation, and audit compliance before the next job, not after the next fall.