Owen v. Hogsed Landscaping – When an Employer Lacks Workers’ Compensation Insurance

North Carolina has had a serious issue with employers who fail to carry proper workers’ compensation insurance to protect their employees in the event of an on-the-job injury. In fact, this last year, the North Carolina Industrial Commission charged some 100 employers with misdemeanors for failure to carry proper insurance. The agency has also collected more than $ 1 million in civil fines.

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Yet problems persist. So what are workers to do?

One option is to sue your employer for personal injury. When employers refuse to secure workers’ compensation insurance as required by law, they are no longer legally insulated from such lawsuits, which can result in substantial payouts to the employee far in excess of what they might have gotten from the workers’ compensation claim. That’s because workers’ compensation doesn’t allow for damages paid for pain and suffering, while personal injury litigation does. Plus, you could seek full reimbursement of wages, rather than the two-thirds allowable under workers’ compensation law. However, that’s typically a slower process and you would still have to prove negligence. 

Unfortunately, North Carolina does not have an uninsured employer fund that would serve as a safety net to workers when there is no policy to cover an injured worker.

That means the other option (only available under some circumstances) would be to dispute the insurance company’s assertion that there was no coverage. This is usually something that would be pursued in cases where workers’ compensation insurance coverage has lapsed for one reason or another. That was the assertion in Owen v. Hogsed Landscaping, recently before the North Carolina Court of Appeals.

Plaintiff was injured in April 2010 when he fell from a tree during the course of his employment with defendant. He filed a worker’s compensation claim two months later, and then an amended claim two months after that. Travelers insurance denied the claim several months later, asserting that its policy was not in effect at the time of plaintiff’s injury.

At the request of those involved, the state Industrial Commission separated the issues of coverage and compensability into two separate proceedings.

The following facts came to light:

This was a small company, with the sole proprietor having assumed ownership of the company from her father in August 2009. At that time, the company submitted an application for an assigned risk workers’ compensation policy through the state’s Rate Bureau. At the time, the application indicated the business had been running for 12 years, hadn’t changed name or ownership in five years, had previously held workers’ compensation insurance, didn’t have any employees or subcontractors and was in the business of pruning, spraying and repairing trees. Rate Bureau assigned the coverage to Zurich, which issued a workers’ compensation policy in September 2009 for a policy period that spanned August 2009 to August 2010.

On the same day the policy was issued, insurer sent the company a letter asking for some paperwork. Specifically, it wanted the previous year’s audit. When it received no response, it issued a notice indicating that because it hadn’t received the requested underwriting information, the coverage would be canceled as of December 2009.

In response, the previous owner – who was an agent of the company, despite relinquishing ownership – contacted the insurer and told them he hadn’t filed 2008 annual taxes and that the company hadn’t maintained workers’ compensation insurance that year. The insurance account manager sent a letter asking for clarification between the information sent in the company’s application to the Rate Bureau and the information the former owner had relayed in this phone call. The insurer received no response and the policy was canceled.

Plaintiff was injured the following April.

The question before the commission was whether the policy was lawfully canceled or if the company was required to pay workers’ compensation insurance to plaintiff. The commission answered in favor of the insurer.

Plaintiff appealed, arguing the commission incorrectly applied state statute when it ruled his employer’s failure to respond to the insurer resulted in a substantial breach of its contractual duties materially affecting the insurability of risk. The appellate court disagreed and affirmed the commission.

This leaves plaintiff with the sole option of suing his employer directly for damages for his work-related injury.

If you have been injured at work, contact the Lee Law Offices at 800-887-1965.

Additional Resources:

Owen v. Hogsed Landscaping, Aug. 16, 2016, North Carolina Court of Appeals

More Blog Entries:

Harris v. Southern Commercial Glass – Apportioning Liability for Workers’ Compensation and Disability Benefits, Aug. 24, 2016, Asheville Workers’ Compensation Lawyer Blog

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