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The state requires almost every employer to have workers’ compensation insurance. However, there are specific rules for certain types of employers, including those with no employees and those operated by their owners. A North Carolina workers’ comp ghost policy may be necessary for such businesses, and it is important to understand what this type of workers’ compensation insurance policy entails.
What Is a North Carolina Workers’ Comp Ghost Policy?
Many business owners throughout the state network with other businesses and contractors to complete their operations. In some cases, a business owner may need to provide a certificate of insurance to demonstrate compliance with the state’s workers’ compensation insurance requirement.
However, it does not make sense for an employer with no employees to pay for coverage they do not actually need. This is where a North Carolina workers’ comp ghost policy can be effective.
To secure the certificate of insurance, the employer can purchase a workers’ compensation ghost policy. This policy does not extend coverage or benefits to the employer and is typically offered at a low premium cost. The policy provides the employer with the certificate of insurance that they need as proof of insurance for various interactions with other companies in the state.
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Why General Contractors Ask for a COI in North Carolina
One of the most important reasons ghost policies exist is that general contractors routinely require a Certificate of Insurance (COI) before allowing a subcontractor to begin work.
Under N.C.G.S. § 97-19, if a principal or intermediate contractor sublets work and fails to first obtain a certificate that shows that the subcontractor has complied with workers’ comp laws, the contractor can become liable for any workers’ compensation benefits that are owed to the subcontractor’s injured employees.
Importantly, the usual threshold for mandatory coverage is three employees, but subcontractors with fewer than three employees can still expose the general contractor to liability. In practice, the certificate that’s required typically means one of the following:
- A Certificate of Insurance (COI) issued by a workers’ compensation insurance carrier that confirms that an active policy is in place while identifying the policy period and the coverage limits.
- A certificate from the North Carolina Industrial Commission verifying that the employer is properly insured or otherwise compliant with state requirements.
- A certificate of compliance for a properly approved self-insured subcontractor, demonstrating that the business has met the financial and regulatory standards necessary to self-insure under North Carolina law.
It’s important to understand that not all certificates are equal. A COI, for example, only provides evidence that a policy exists. It doesn’t confirm who’s covered, whether the owners are excluded, or if payroll has been accurately reported. That’s why careful review matters. General contractors aren’t just collecting paperwork for their files; they need to see that all documentation is in compliance before work begins, as required by law.
This is why general contractors insist on having all documentation upfront and also why they often require updated certificates for long-term projects. They’re protecting themselves from downstream liability under North Carolina law, as they could become a statutory employer if the subcontractor’s employee is injured and proper coverage isn’t in place.
Obtaining and retaining the correct certificate can serve as a critical layer of protection if a workers’ comp case develops later on, and a North Carolina workers’ comp attorney can help.
The Hidden Risk of Ghost Policies in North Carolina
Here’s where the trouble can start. North Carolina’s workplace injury rate is 1.9 per 100 full-time workers, and the national average cost of a workers’ comp injury is $90,043.
A ghost policy usually doesn’t cover any employees, and sometimes not even the owner. While it can produce a COI, that doesn’t automatically mean that real workers on the job are actually protected.
Consider a common scenario. A one-person subcontractor purchases a ghost policy to satisfy a general contractor’s COI requirement. Months later, that subcontractor brings on a helper for a short-term project, and the helper gets injured on the job. If the subcontractor didn’t obtain the proper workers’ compensation coverage and no compliant certificate was secured beforehand, the general contractor could be held liable under North Carolina’s workers’ comp laws.
Suddenly, what seemed like a simple administrative step becomes a serious workers’ comp case involving multiple parties. The injured worker can pursue benefits, and the general contractor can be held responsible, even though they thought that they’d protected themselves.
A ghost policy may satisfy a contractual checkbox, but it doesn’t actually guarantee compliance. An experienced North Carolina workers’ comp attorney from Ayer, Ayers and Dressler can review whether the coverage is valid and whether all statutory requirements have truly been met.
When to Purchase Standard Workers’ Compensation Insurance
If you own a business and have no employees in the state, a workers’ comp ghost policy may be all you need for the time being when it comes to securing proof of insurance. However, if your operation grows and you need to hire employees, you must secure standard workers’ compensation insurance or risk severe legal penalties. Companies can be fined and shut down until they can show proof of appropriate insurance coverage.
Workers’ compensation exists to protect both business owners and their employees. A covered employer typically isn’t liable for their injured workers’ damages, and the insurance policy provides a financial safety net to the injured worker after they are hurt while working. As long as an injury occurs while the employee is performing their job duties, the employee can qualify for workers’ compensation benefits.
It is important to remember that fault does not play a role in most workers’ compensation cases. It is possible for a worker to have caused their own injury and still qualify for benefits. However, if they violated workplace safety regulations, engaged in horseplay at work, or were working under the influence of drugs or alcohol, these factors could disqualify them from workers’ compensation benefits.
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Employers required to have workers’ compensation insurance in the state must see that their policies meet the state’s coverage requirements. The cost of maintaining a workers’ compensation insurance policy typically depends on the number of employees and the overall risk level of the work they do. If you are unsure whether a workers’ comp ghost policy is appropriate for your situation, you need to hire a workers’ comp lawyer as soon as possible.
FAQs
How Much Does a North Carolina Workers’ Comp Ghost Policy Cost?
The cost of a workers’ comp ghost policy is typically quite low, with an annual premium that would be far less than an employer would likely be required to pay even if they had to insure a single employee. Every insurance carrier offers different rates, and it is important for an employer to secure a ghost policy that provides the certificate of insurance they need for their business.
What Coverage Does a Workers’ Comp Ghost Policy Include?
A workers’ comp ghost policy does not include any coverage. This type of policy is available only to an employer who has no employees and has no plans to hire any during the policy term. The policy does not cover the employer in the event of a work-related accident, nor does it provide any benefits. The sole purpose of a North Carolina workers’ comp ghost policy is for the employer to secure a certificate of insurance.
What Happens if a Business Owner Suffers an Injury From Work With a Ghost Policy in North Carolina?
If a business owner suffers an injury from work and has a North Carolina workers’ comp ghost policy, this policy won’t work like other workers’ compensation insurance and won’t provide any coverage or benefits to the injured business owner. They might need to use their own personal health insurance to cover the cost of their injury. The only purpose a North Carolina workers’ comp ghost policy serves is to provide a certificate of insurance.
What Happens if I Need to Hire an Employee if I Have a Ghost Policy in North Carolina?
In North Carolina, if you have a ghost policy and need to hire an employee before your insurance term ends, you need to notify your insurer immediately and then purchase a workers’ compensation insurance policy that provides the required coverage to your employee. There may be a fee if you need to cancel a ghost policy before the policy term ends, but it is crucial that you do not hire any employees unless you can cover them with workers’ compensation insurance.
Can a Self-Employed Person Buy Workers’ Compensation Insurance in North Carolina?
Yes, it is possible for a self-employed person to buy workers’ compensation insurance in North Carolina. Most insurance carriers base their policy premiums on the number of employees and the total scope of benefits. It’s important for a self-employed person to weigh the cost and potential benefits of workers’ compensation insurance versus personal health insurance. Workers’ compensation may provide disability benefits to replace lost income after a work-related injury.
Get Legal Support
The team at Ayers, Ayers and Dressler has years of experience handling complex work injury cases for clients in Charlotte and surrounding communities. If you are a business owner in need of a North Carolina workers’ comp ghost policy, or an injured worker who believes their employer has not met their insurance requirements, we can help.Contact us today to schedule a free consultation with our team.
