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How a $200 Workers’ Compensation Policy Could Have Avoided a $2 Million Nightmare

Fitzgerald Ventura
April 22nd, 2021 · 2 min read

A federal jury in Ohio recently ordered RLI, an insurance company, to reimburse a labor vendor $2 million for its out-of-pocket settlement of a civil suit brought by an uninsured contractor. The ruling—and the events leading up to it—are a cautionary tale both for labor platforms and contracting entities about the importance of workers’ compensation (WC) and general liability insurance for contingent workers.

Summary of the Case

A contractor, Ryan Marshall, lost both of his legs due to an injury he sustained while working at Dura-Bond. Despite having no WC coverage, he filed a WC claim in Pennsylvania against Dura-Bond and won. The court ruled that Mr. Marshall was misclassified as a contractor and was in fact acting as an employee of Dura-Bond.

The court further found that the vendor through which Mr. Marshall was contracted, Motor Express, also was his employer. The amount Dura-Bond paid on the WC claim is not public, but the payout was likely substantial given the severity of Mr. Marshall’s injury. Dura-Bond has now sued Motor Express to recoup the WC claim it paid for Mr. Marshall.

Matters only escalated from there. Mr. Marshall filed a civil suit against Motor Express for pain and suffering and other damages. Motor Express turned to its insurance carrier, RLI, to cover those expenses under its general liability policy. But RLI denied the claim, pointing to the Pennsylvania court ruling that Mr. Marshall was an employee, and general liability policies exclude work-related claims of employees. In response, Motor Express paid Mr. Marshall then successfully sued RLI to collect $2 million.

The ordeal may not be over. It has yet to be seen whether the IRS and the U.S. Department of Labor (DOL) will now take a closer look at whether other Motor Express contractors were misclassified. If so, Motor Express could face crushing financial penalties.

Lessons Learned

There are no winners in this story. Dura-Bond, Motor Express, and RLI have incurred significant costs in terms of judgments, legal expenses, management team distraction, and the loss of goodwill. Motor Express may now face additional penalties if the IRS or DOL get involved.

While Mr. Marshall’s tragic injury would not have been prevented, all of these other effects could have been avoided if Mr. Marshall had obtained a relatively inexpensive WC policy. In addition, Mr. Marshall could have secured a general liability policy that, if structured correctly, would have covered the $2 million civil suit.

The key takeaway is that both labor vendors and contracting entities should require that all of their contractors have WC and general liability coverage for appropriate types of work. 1099Policy makes it easy for online labor platforms to offer contractors these policies on-demand at the time of assignment. Moreover, we ensure that contractors have the level of coverage you specify each and every time they work for you, which eliminates the complexities around compliance.

You can learn more about this case on Westlaw Today and Casetext. To learn more about how 1099Policy could help your organization avoid precisely the kind of scenario described here, contact us.

Photo by Christopher Burns on Unsplash.

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