What is workers' compensation insurance?

Statutory, no-fault coverage for employees

Workers’ compensation is the insurance that pays a business’s own employees when they are hurt or made ill by their work. It is a no-fault system: an injured employee receives medical care and a portion of lost wages regardless of who caused the accident, and in exchange generally gives up the right to sue the employer for the injury. This grand bargain is written into state law, which is why coverage is mandated rather than optional.

Because it covers the insured’s own workers, workers’ comp fills the gap left by commercial general liability, which only responds to third-partyinjuries and excludes the insured’s employees. A subcontractor needs both: CGL for the public and workers’ comp for its crew.

Employer’s liability (Part B)

A workers’ compensation policy comes in two parts. Part A provides the statutory workers’ comp benefits set by each state. Part B, employer’s liability, covers the business against certain lawsuits related to a workplace injury that fall outside the no-fault system—for example, third-party-over actions or claims alleging employer negligence. Employer’s liability carries its own limits (often shown on the certificate as bodily injury by accident and by disease), and GCs frequently specify minimums for them.

Waiver of subrogation on workers’ comp

A key requirement in most construction contracts is a waiver of subrogationon the sub’s workers’ comp policy. Normally, if a sub’s employee is injured on a job and the sub’s insurer suspects the general contractor contributed to the accident, that insurer can pay the worker and then pursue (subrogate against) the GC to recover its money. A waiver of subrogation endorsement gives up that right against the GC.

The waiver has to be added to the policy by endorsementand evidenced on the certificate. A checkbox alone is weak proof—the actual endorsement form confirms the sub’s carrier really agreed to waive its recovery rights in favor of the GC.

Exemptions, ghost policies, and the uninsured-sub risk

Not everyone is automatically covered. Sole proprietors, partners, and corporate officers can, in many states, elect to exclude themselves from workers’ comp. That creates a well-known trap: a one-person sub may buy a so-called ghost policy—a workers’ comp policy that excludes the owner and, if the owner is the only worker, effectively covers no one. The certificate looks compliant, but if that owner is injured, there may be no coverage at all, and the exposure can drift toward the GC.

• Watch for policies that exclude the owner or all officers—confirm who is actually covered.
• Be wary of subs who claim a blanket exemption; verify it against state rules and the contract.
• An uninsured or under-covered sub can leave the GC exposed to a serious injury claim and to penalties for allowing uninsured work.

How does Wardly help?

Wardly is free COI tracking software built for general contractors. It reads each subcontractor’s certificate of insurance, confirms workers’ compensation and employer’s liability are in force, checks for the waiver of subrogation you require, and flags expired or missing coverage—grading every certificate A–F automatically. See how it compares to myCOI and TrustLayer on the comparison hub.

This is general information, not legal or insurance advice.