Nevada Revised Statues only require an individual or organization to obtain and maintain Employers Liability Insurance, if that organization pays wages or compensation greater than $600 in a 12 month period. The majority of, common interest communities have no employees and pay no wages. So why would I advise the board to purchase Employers Liability Insurance commonly referred to as workers compensation?

The purpose of purchasing insurance is to transfer the financial risk from the association to a deep pockets insurance company. Commercial general liability insurance excludes all employee liability issues that are contained within the Nevada Workers Compensation Act. Workers Compensation insurance provides for both defense and indemnity. Therefore, if an individual would make a claim against the association for an injury that falls within the workers compensation rules the insurance company would, first defend the association against the claim. If the defense was successful the matter would end. If the defense was not successful, then the insurance company would make all payments as required by state law. If the association did not have insurance, the cost of first, defense and second, possible indemnity would fall to the Association’s General Funds and Assessments.

We have no employees and pay no wages. How can we be drawn into a claim? A member of the board is unemployed, self employed or retired. He is without health insurance. He now suffers an injury that requires payment of medical and rehabilitation costs. Magically, he claims he was performing association business when the injury occurred. Workers Compensation provides coverage not only for lost wages, but for medical and rehabilitation expenses. So, now our hurt board member files a claim for those medical and rehab benefits, noting he has no lost wages. If the association does not have Employers Liability then the association must defend this claim. I have seen three such claims in the last few years. In all three cases the insurance company was successful in the defense, and no indemnity was paid. Remember, I only see the claim if the association maintains coverage.

Nevada uses what is referred to as, the General Contractors Rule. That rule makes the general contractor responsible for the workers compensation coverage of all subcontractors hired. Associations hire many licensed subcontractors for services such as landscape, gate, pool, lighting and fire suppression. Employer liability insurance companies do not issue Additional Insured Endorsements. To be covered by an individual policy you must be a Named Insured. So, when you obtain a Certificate of Insurance from a subcontractor, that certificate is only valid to the date issued. Coverage could lapse without the associations’ knowledge. If the subcontractor’s coverage lapses and their employee is hurt on your premises, you could be required to pay. An employee who dies on the job is entitled to an automatic $100,000 settlement payable to his estate. The annual cost of workers compensation is $700 to $1,000 annually for an association with zero employees and zero payroll. Would the prudent man’s rule suggest the association transfer the employer risk to an insurance company?

The board has now agreed the purchase the workers compensation coverage. We place the new policy in the insurance folder and hope no claims are made. Now, we can hire uninsured subcontractors. Not quite. The cost of workers compensation is based on payroll. So, if you have subs without insurance you must claim the amounts paid as payroll and the insurance company will charge you the cost for that coverage. Further, the insurance company will send out payroll reports and audits. When received, the association must complete the forms and return along with all required supporting documentation. Again, the risk here is subcontractors, so the supporting documents will be proof that the subcontractor has his own workers compensation insurance. All associations should be obtaining Evidence of Liability insurance from all subcontractors at least on an annual basis. And again, if the insurance company thinks the subcontractor is uninsured they will bill you.

We have completed the audit and have no uninsured subs. So, the board is now covered. Not Quite. The association is the Named Insured. If you wanted individual board members covered then a wage base would be assigned to each individual, and premium paid based on the wage rates. Remember the example; the insurance company would defend against an unjustified claim. The reason the cost if very small is that the insurance company is betting very few claims with defense only. If they are wrong then the insurance company pays the unexpected financial loss not the association.

Workers compensation is a very valuable coverage that all associations` should maintain as part of the overall insurance program.