Independent SUB-CONTRACTORS, Independent OWNER-OPERATED DRIVERS, or independently contracted business operators, can have unlimited and unexpected HIGH RISK exposures.


Workers compensation claims, and various COURT findings in favor of the independent sub-contracted BUSINESS OWNERS employee or driver against a primary contractor, have bankrupted many businesses.  The Court usually favors the injured party.


The circumstances that create HIGH RISK EXPOSURES are complicated, due to the “intendedindependent nature of the relationship between a Business Owner and an independent SUB-CONTRACTED service company.


An independent sub-contractor is generally working under a service agreement furnished by the Primary Contractor to the independent sub-contractor business owner.  The contract generally stipulates the job, duties, responsibilities, and services to be rendered, the manner in which they will be completed and how compensated.  The PRIMARY CONTRACTOR pays a services fee to the independent contractor based on the terms of the agreement.  The Primary Contractor normally provides the JOB, all material, billing and collection services for all costs, and directs the independent sub-contractors what to do and how to do it.  The job is the Primary CONTRACTORS product.  As far as the buyer of services knows, all persons on the job are the contractors employees, since the buyer did not contract with any other service provider but the PRIMARY CONTRACTOR.


The primary contractor, due to the terms of the Service Agreement with the independent sub-contractor,  issues an IRS form 1099, which allows the primary contractor an exemption from filing; FICA, unemployment taxes, or having to pay workers compensation premiums.


The independent sub-contractor, due to their independent contractor status, may be exempt from Workers Compensation laws in some states because of size.  Unless the independent sub-contractor has employees that must be provided coverage under state Workers Compensation laws, the independent sub-contractor may carry no Insurance.


HOWEVER, “if” an employee, or even the independent sub-contractor as an individual, is SERIOUSLY injured, and is not covered under any other insurance, the injured person, may be required to file a law suit against the primary contractor, in an effort to win employee status, and gain access to the Primary Contractors Workers Compensation insurance coverage, or Primary Contractors assets.


]There have recently been loop holes found in almost every states Employment Laws where the legal community has identified that it can lead the courts to decide in favor of the independent sub-contractors employee, as having a status of being an employee of the Primary Contractor.  Awards of this type are becoming more frequent all the time.


There are several solutions available to the Primary Contractor:


1.     Contractually, the Primary Contractor should do everything he can to identify and MAINTAIN an “arms-length” relationship, thus preserving the appearance and status of Primary Contractor and  Independent Sub-Contractor.


2.     MANDATE, thru an independent Sub-Contractor written agreement, that the independent sub-contractor provide EITHER, (1) their own individual employer workers compensation coverage, or (2) purchase alternative JOB RELATED Employer Liability with Supplemental Accident Benefits Insurance.   Employers Liability coverage is about HALF the cost of Workers Compensation, but DOES NOT satisfy Workers Compensation Benefit LAWS.


                  By allowing the independent sub-contractor to choose the coverage to be furnished his employees, the Primary Contractor is not mandating any certain product.  This fact could be used to help establish a defense in that the freedom of choice to obtain separate insurance itself identifies independence.




You should attach to every formal independent sub-contractor service agreement, a DISCLOSURE, and a separate CONTRACTUAL AGREEMENT FORM, similar to the samples attached.  Have the forms completed, signed by all parties, and made a part of any contract effected.




                  Purchase this coverage for your own protection. This insurance will provide a defense in the event that an injured sub-contractor or independent sub-contractors employee sues the primary contractor for employee status.




                  Arrange to have available insurance coverage for the Independent Sub-Contractor, and the Independent Sub-Contractor’s employee(s), in the form of Employers Liability with Supplemental Accident Benefits, as being a viable alternative to Workers Compensation Insurance, which the sub-contractor can purchase for HIS employees and himself.


                  Note:  Employers Liability with Supplemental Accident Benefits, is much less than STANDARD Workers Compensation alone, but will not satisfy any state Workers Compensation state laws.


                  Employer Liability with Supplemental Accident Benefits will provide, if purchased thru the Association, the following Supplemental Accident Benefits, as well as Employer Liability Insurance:


                        A.  $250,000 annual aggregate Liability for suits from employees;

B.      $75,000 for medical;

C.      Accidental Death and Dismemberment Benefits; and

D.     Disability income payments, equal to 60% percent of wages up to 26 weeks, after a 14 day waiting period.


The penalty paid by many Primary Contractors for not taking the contractor and independent sub- contractor status seriously, has resulted in:


1.     The injured party filing for employee status against the Primary Contractor AND WINNING, which then;


a.      Causes the workers compensation carrier, of the primary CONTRACTOR, to pay benefits to the independent sub-contractors employee;


b.     Causes the Workers Compensation Insurance Company, seeing that one independent contractor has received employee status, to audit the Primary Contractor’s records for 3 years and require the “Primary Contractor” to pay all back premium for “all” independent contractor employee persons used during the past 3 years;   and then that,


c.      Causes the State Unemployment Agency to file a claim for 3 years unpaid unemployment taxes. 


Was the accident and injury preventable?  Probably NOT!


Was the potential “financial” responsibilities connected with the employee status ruling preventable?  YES - DEFINITELY!


The above recommendations regarding, (1) the contractual procedures to follow when using the services of an independent sub-contractor, (2) requiring that the independent sub-contractor purchase Workers Compensation insurance for his employees, or make available Employer Liability Insurance with Supplemental Accident Benefits, for which the independent sub-contractor must purchase and pay for, and (3) recommendations that you should purchase, as the Primary Contractor, Contingent Workers Compensation Liability Insurance for your business, to protect you against the costs associated with defending a claim filed by an employee of an independent contractor for employee status.


Please contact the Association office and obtain additional information regarding, (A) Contingent Workers Compensation Employer Liability, and (B) Employers LIABILITY with Supplemental Accident Benefits, for your company.   To make this coverage available for your independent sub-contractors, you could offer to deduct the cost of the accident insurance from the agreed service agreement; at least a good faith best effort is being made to satisfy the employee status question.  This type of effort may protect you in the courts against claims that could seriously effect your business.   You may also wish to consider the Employer Liability with Supplemental Accident Coverage for yourself, and other officers or employees that may have OPTED OUT of Workers’ Compensation, which may be allowed by law in your state.




                                                                        F. Darrell Lindsey

                                                                        U.S. Licensed Agent/Producer