Workers' Compensation Insurance Required by Homeowner Associations

Homeowner associations should carry workers' compensation insurance even if they believe they have no employees. If the board hires a contractor, handyman, or other service provider, the association can become liable for employment-related injuries even though they are independent contractors.

Under California law, if a board hires an unlicensed contractor, the association automatically becomes the employer of an injured worker. (State Compensation Ins. Fund v. Workers' Comp. Appeals Board (1985) 40 Cal.3d 5.) This is true even if the contractor misrepresented the fact that he or she was licensed and insured. Without workers' compensation insurance, there are no limits to the damages that can be claimed by an injured employee, including claims for pain and suffering. The homeowner association can become liable and the membership can be subjected to large special assessments to pay any financial damages. With workers’ compensation insurance, an employee's claims are limited, and the loss is paid by the insurance company.

In the case Heiman v. Workers’ Comp Appeals Board (2007), the Montana Villas Homeowners Association hired Pegasus Properties (Robert Heiman) as its management company. Pegasus hired a contractor to install rain gutters for the association. The contractor’s employee was careless, and a rain gutter touched a high voltage electrical wire severely injuring the employee. Since the contractor hired by Pegasus was unlicensed and uninsured, the court ruled that both the association and its management company were the employers of the injured worker and both were held liable to pay him workers’ compensation benefits which were substantial.

Generally, as long as a contractor is licensed, an injured worker remains the employee of the contractor, and not the association. If the contractor is licensed, an injured worker can proceed against the contractor either in civil court or file a claim under workers' compensation. If there is a finding of dual employment because of no insurance, the association will become liable. As long as the association is insured for workers' compensation, the injured worker's remedy is limited to workers' compensation. If the association is not insured, the injured worker can pursue the association both civilly and make an uninsured employers claim.

To avoid large special assessments, HOA boards should purchase workers' compensation insurance through an independent insurance brokerage firm, even if the board believes the association does not have any employees, and make certain their contractors are licensed.

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