A workers’ comp ghost policy is a type of workers’ compensation insurance policy that covers a business on paper but doesn’t provide any actual benefits. These policies are most common in the construction industry, where contractors often need to show proof of workers’ compensation coverage to win bids or satisfy general contractors’ requirements.
In essence, a ghost policy exists to provide the illusion of fulfilling administrative workers’ comp requirements while offering little to no real protection for the people doing the work. But what does it mean for you after a workplace injury?
Why Contractors Use Ghost Policies
General contractors in North Carolina typically require subcontractors to prove that they carry workers’ comp insurance before they’ll be allowed on a job site. Under North Carolina law, a principal contractor who sublets work without obtaining proof that the subcontractor carries compliant coverage can face workers comp liability for the injuries of any workers operating under that subcontractor (N.C.G.S. § 97-19).
To satisfy state insurance requirements, some independent contractors purchase so-called “ghost” policies for workers’ comp. A ghost insurance policy typically costs much less than real insurance coverage because it doesn’t actually provide any benefits. However, it generates the certificate of insurance that general contractors need to see so it can pass undetected. In other words, it is fake workers’ comp insurance.
For a sole proprietor or single-member LLC who works alone, this kind of policy gives the illusion of fulfilling the right requirements while keeping premiums low.
What Coverage Does a Workers’ Comp Ghost Policy Include?
Ghost policies generally don’t provide any workers’ comp coverage, not for the contractor named on the policy or any employees they hire.
Under North Carolina law, sole proprietors, LLC members, and partners are not automatically counted as employees for workers’ compensation purposes (N.C.G.S. § 97-2). That means they can legally be excluded from coverage.
A ghost policy takes advantage of this definition by excluding the contractor from coverage, which dramatically reduces the insurer’s risk and the policy’s cost. If an excluded contractor hires employees, those workers also won’t have coverage under the workers’ comp policy, as it essentially covers no one.
These policies are intended to be purchased by workers who aren’t strictly required to carry insurance, typically because they have no employees to cover. However, some contractors will lie, misclassify employees as independent contractors, or hire employees after the fact. That means neither the contractor who purchased it nor their employees have any workers’ compensation benefits if they suffer an injury on the job.
The Risks of Ghost Policies in North Carolina
Workers’ comp insurance ghost policies can create serious risks for everyone involved in a construction project.
For injured contractors or their employees, the absence of coverage means no wage replacement benefits, no medical coverage, and no path to workers’ compensation benefits from an insurance company. They must try to collect the compensation they are entitled to directly from their employer, which can be very difficult as most are judgment proof or close to judgment proof. They may find themselves without support when they need it most.
The risks are equally significant for general contractors. That’s because North Carolina law holds principal contractors liable for injuries to a subcontractor’s employees if they fail to verify if the subcontractor has the required coverage (N.C.G.S. § 97-19). A certificate of insurance generated by a ghost policy may not satisfy legal insurance requirements if the policy was designed to cover no one. General contractors who accept these certificates without scrutinizing the underlying policies could face unexpected liability. Unfortunately for the injured worker, it may take many months of litigation to get to the bottom of whether the general contractor properly scrutinized the ghost policy.
North Carolina requires every covered employer to carry workers’ compensation insurance or qualify as self-insured. Business owners and contractors who use ghost policies to misrepresent their coverage status may also expose themselves to penalties, up to and including imprisonment. Negligently not having workers’ comp insurance is only a misdemeanor, but “willful failure” to buy workers’ comp insurance is a class H felony (N.C.G.S. 97-94).
What to Do If You’re Injured at a Job with a Ghost Policy
It can be alarming to discover that you were working under a ghost policy after you’ve been hurt, but you still have options. Here’s what you can do to protect yourself in this type of situation:
- Report the injury right away. Notify your employer and/or the general contractor of the injury as soon as possible. Your report creates an official record that will be important for your claim. Download Form 18 from the North Carolina Industrial Commission’s website, fill it out, give a copy to your employer and a copy to the Industrial Commission. Save a copy for your records.
- Seek medical attention. Get evaluated and treated as soon as possible, even if your injuries don’t seem that bad. Your medical records will serve as critical evidence in any claim you pursue.
- Document everything. Photograph the accident scene, gather the names of any witnesses, and keep every medical record, bill, and correspondence related to the injury.
- Request insurance information. Ask for a copy of the workers’ compensation policy and the certificate of insurance. The specifics of what the policy covers will shape your next steps.
- Review your options. If a general contractor or upstream contractor failed to verify that your employer carried legitimate coverage, they may be liable for your injuries under North Carolina law. Our team can help you identify every party that may be responsible. (C.G.S. § 97-19)
- Contact a workers’ compensation lawyer. Ghost policy situations are legally complex. Our experienced attorneys can evaluate your claim, identify all potential sources of recovery, and fight for the compensation you deserve.
Get in Touch with Our Raleigh Workers’ Compensation Attorneys
If you were injured on a job site and suspect that a ghost policy is involved, the attorneys at Younce, Vtipil, Baznik & Banks are ready to help. Our firm brings over 100 years of combined legal experience to every workers’ compensation case we handle. That has led to millions secured for injured workers across the state, including one $3,336,000 wrongful death and workers’ compensation settlement in a construction accident case.*
Our clients trust us because we treat them as people, not case numbers. Here’s what one former client had to say about working with our team:
“Mr. Baznik handled my workers compensation case and stayed well ahead of it. Always keeping me informed and going the extra mile for my needs. I’m so glad I chose to call Joe Baznik and will use his team again if I ever need an attorney.” – Jon Connell
When you work with our firm, you work directly with a licensed North Carolina attorney who will represent you throughout your case. We also offer a state-of-the-art case tracking system so our team can stay on top of every development in your claim.
Our staff includes fluent English- and Spanish-speaking team members. Contact us today to get started with your free consultation.
*Each case is unique, and past results do not guarantee future outcomes.
About the Author
David E. Vtipil
David Vtipil is an attorney at Younce, Vtipil, Baznik & Banks, P.A. and concentrates his law practice on personal injury and workers' compensation. David E. Vtipil was selected by his peers for inclusion in the 21st Edition of The Best Lawyers in America in the field of Workers’ Compensation Law.
