Why Should Your HOA Maintain A Workers Compensation Policy

Truman and Gail Lawson had an unwieldy 50-foot palm tree in their front yard and they wanted it trimmed. It seemed like an easy task. The Lawsons hired Eliseo Lascano, owner of Anthony’s Tree Service, to perform the work. Lascano agreed to charge the Lawsons $450 and assigned Miguel Fernandez, one of Lascano’s employees with more than four years’ tree-trimming experience, to the task. Unfortunately, Fernandez fell from the tree while performing the work sustaining serious injuries.

The California Business and Professional Code requires a contractor’s license to trim a tree measuring 15 feet or more. (Bus. & Prof. Code, § 7026.1, subd.(c)). Despite apparent misrepresentations to the contrary, neither Lascano, nor his company,

Anthony’s Tree Service, were licensed. State Compensation Ins. Fund v. Workers’ Comp. Appeals Board (1985) 40 Cal.3d 5, 12-16 Labor Code, makes an unlicensed contractor who is performing work for which a license is required an employee of the hirer of the unlicensed contractor, for the purpose of workers’ compensation. In other words, the Lawson’s, by hiring an unlicensed contractor to do the work, had now automatically become the injured worker’s employer.

Could the above scenario occur at a common interest development? Absolutely. Despite the constant and well-intentioned warnings of cautious community managers, Boards of CID’s often hastily hire vendors to do work and never think of confirming the existence of the vendor’s workers’ compensation policy.

California law requires ALL employers to maintain workers’ compensation insurance – California Labor Code, Section 3600(a). Furthermore, nearly every set of CC&R’s require a Board of a common interest development to purchase workers’ compensation coverage “to the extent necessary to comply with applicable law.”

Nevertheless, many Boards ignorantly argue the coverage is unnecessary thinking that an injured worker will “be covered somehow.” Unfortunately nothing could be farther from the truth. If Miguel Fernandez were injured at a common interest development, could he sue the Association and seek coverage under the Association’s general liability coverage? No. All general liability policies covering community associations contain specific exclusionary language which eliminates coverage for “any obligation” of the Association “under a workers compensation (sic) law.” (ISO Language – 1992 – CG 00 01 10 93).

If the Board is sued by the homeowners for failing to purchase coverage, surely the Board would have coverage under their Directors & Officers Liability policy. Unfortunately, again the answer is “no.” Consistent in every Directors & Officers Liability policy is a specific exclusion for any claim “arising out of, directly or indirectly resulting from or in consequence of, or in any way involving”… bodily injury or sickness — whether workplace related or not. In other words, if the Board is sued for a failure to maintain workers’ compensation coverage, they will find themselves without any benefit of D&O protection.

The Story of Montana Villas HOA