Update: Shifting Liability for Workers Compensation Benefits

Guest Author: Scott Bradley of Gallivan, White and Boyd, P.A.
General Counsel for the Home Builders Association of Greenville

On June 15, 2009, the South Carolina Supreme Court reaffirmed that general contractors must thoroughly validate the certificates of insurance of its subcontractors to be able to shift liability for workers' compensation benefits to the South Carolina Uninsured Employers Fund pursuant to S.C. Code Section 42-1-415. The underlying action involved a general contractor that hired a subcontractor to perform certain work on a project. The subcontractor provided the general contractor with a Certification of Insurance in connection with the project. The certificate showed that the policy was effective from January 1, 2003 through December 31, 2003 but the "Description of Operation" box was blank and no information was provided on coverage, deductible or the applicable project.

While working on this project, on February 19, 2004, an employee of the subcontractor was injured. As it turns out, the subcontractor did not have Workers' Compensation coverage. Under South Carolina law, since the general contractor was the highger tier contractor, it was the statutory emplyer of the injured worker. Therefore, as statutory employer, it was liable to pay benefits to the injured worker for his injuries. As a result, the general contractor then sought to transfer liability to the South Carolina Uninsured Employers Fund pursuant to S.C. Code Ann. Section 42-1-415.

This matter was heard by the Workers' Compenstaiton Commission, the South Carolina Circuit Court and then appealed to the Court of Appeals. The Court of Appeals reversed the circuit court, finding there was substantial evidence in the record that showed the general contractor did not comply with Section 42-1-415 and therefore, could not shift liability.

The case was appealed once again. The Supreme Court of South Carolina agreed with the Court of Appeals stating that in order to transfer liability, the general contractor must have properly documented the subcontractor's claim that it retained workers compensation insurance. The Court found that acceptance of an incomplete certificate did not constitute proper documentation as to comply with Section 42-1-415. Additionally, the Court noted that a general contractor may not rely upon an expired policy as evidence of workers compensation insurance; therefore, after December 31, 2003 the general contractor no longer had proper documentation that the subcontractor had workers compensation insurance.

This opinion reaffirms that general contractors must diligently verify the information on certificates of insurance and maintain a system to require subcontractors to update their certificates. Otherwise, they may find themselves liable to subcontractors employees for benefits.

Ref: Timothy Mark Hopper v. Terry Hunt Construction, South Carolina Uninsured Employers Fund, Kajima USA, Inc. and Zurich American Insurance Company, Opinion No. 26665, South Carolina Supreme Court (June 15, 2009).

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Thank you to Scott Bradley and Gallivan, White & Boyd, P.A. for submitting and allowing us to use this article.