Agribusiness

Getting work done by independent contractors is very common, especially for those in the agricultural industry.  Whether one is contracting for a small job like painting a barn, or a larger job like building a tool shed or grain storage bin, it is important to understand the liability risks involved with those very common contractual relationships.

In a recent case, the Indiana Court of Appeals highlighted the risk that individuals face in their professional and private lives when contracting for jobs valued at more than $1,000.  The Court of Appeals found that the Indiana Worker's Compensation Act places liability on the person who lets such a contract (the "statutory employer") under certain circumstances.

The Act states that when the statutory employer - a farmer, for example - hires someone to do a job valued at more than $1,000 the statutory employer will have to pay the worker's compensation benefits if (1) there is an injury to the contractor's employee; (2) the contractor does not have worker's compensation insurance; and (3) the person contracting for work to be done has not obtained a certificate on the contractor from the Indiana Workers' Compensation Board.  This is commonly called the "statutory employer's liability."

In the case, a farmer hired a contractor to paint a house and barn.  Although the legislation exempts work done on one's personal residence only, this job involved the house and barn, so the exemption does not apply.  The farmer did not obtain a certificate from the Indiana Worker's Compensation Board showing that the contractor had worker's compensation insurance.  An employee of the contractor was injured on the job and the contractor did not have worker's compensation insurance.  The employee demanded worker's compensation benefits from the farmer.  The farmer sought coverage under his personal liability policy, but that policy excluded benefits that are required to be paid under worker's compensation law.  The insurance company successfully argued that the exclusion, a common exclusion in liability policies including most homeowner's and business liability policies, precluded any coverage to the farmer for the injured person's worker's compensation benefits.  Therefore, the court held the liability insurance policy did not provide coverage for the farmer for any amount he had to pay to the injured worker.

Therefore, to avoid personal and business risk, one must obtain a certificate from the Worker's Compensation Board showing that the contractor has worker's compensation insurance.  A certificate signed by an insurance agent will not be sufficient to mitigate liability in the event that an injury occurs and the contractor does not have worker's compensation insurance.  Also, if you have worker's compensation insurance for your operation, you should check whether that policy may provide coverage for this situation.  Finally, see if you can get contingent worker's compensation coverage on your farm's liability policy.