NEBRASKA GENERAL CONTRACTORS SHOULD TAKE ALL NECESSARY STEPS TO ENSURE THAT SUBCONTRACTORS HAVE VALID WC POLICIES BEFORE PROCEEDING TO WORK WITH THE SAME

The Nebraska Supreme Court recently reminded general contractors of the obligation it has over subcontractor employees. Appealing an award of the Nebraska Workers’ Compensation Court,  the defendant in Martinez v. CMR Construction & Roofing of Texas, 302 Neb. 618 (Mar 22, 2019) alleged it was not a statutory employer under Neb. Rev. Stat. § 48-116 and disputed whether the workers’ compensation Court had personal jurisdiction over a Texas insurance company. By way of background, CMR was engaged in repairing and replacing roofs. In 2014, CMR engaged Rene Menjivar as a subcontractor. At that time, CMR required Menjivar to produce workers’ compensation insurance. CMR verified a policy held by Texas Mutual.  CMR also required it be added to the Texas Mutual policy so that the insurance company would be required to notify CMR if the policy was cancelled or expired. CMR was successfully added to the policy.

On March 12, 2015, one of Menjivar’s employee was seriously injured when he fell off a roofing project that had been assigned by CMR.  A Petition was filed. It was then learned Menjivar’s workers’ compensation policy had been cancelled due to nonpayment in December of 2014. As the case proceeded, the compensation court held CMR was the statutory employer. The court also dismissed Texas Mutual on the grounds the court lacked personal jurisdiction over it.  At trial, the court held CMR was liable for over $52,000.00 in medical expenses in addition to significant indemnity benefits. CMR appealed.

Affirming the award, the Nebraska Supreme Court held CMR’s steps to ensure Menjivar had proper workers’ compensation coverage did not exclude it from the status of statutory employer under § 48-116. Summarized, § 48-116 essentially states that a general contractor will be considered a statutory employer of its subcontractor employees unless the general contractor, in good faith, requires the subcontractor to procure a policy of insurance from an insurance company licensed to write such policies in the state of Nebraska.  Even though CMR appeared to require Menjivar to carry such a policy, and indeed, it verified that such policy existed at the time it initially contracted with Menjivar, the pitfall of the case was the fact the insurance policy Menjivar acquired did not apply to Nebraska. Stated another way, even if the policy was not canceled due to nonpayment, Texas Mutual’s policy did not apply to Nebraska injuries. The Supreme Court likewise reiterated that CMR failed to ensure Menjivar had a valid policy before giving it the 2015 roofing job which ultimately led to the employee’s injury.  While the court recognized that Texas Mutual was supposed to notify CMR of a cancellation, it held that CMR did not verify the status of the policy before assigning work to Menjivar in 2015 and if it would have, it would have found the policy had been canceled.

The Nebraska Supreme Court then addressed whether it had jurisdiction over Texas Mutual. Affirming the compensation court, the Supreme Court held Texas Mutual’s policy did not apply to Nebraska benefits. It noted there were no payments made by Texas Mutual to any claims arising in Nebraska, Texas Mutual had no solicitation efforts or offices in Nebraska, nor was it licensed in Nebraska. Additionally, it noted Menjivar’s unilateral actions as an insured did not do anything to create personal jurisdiction over Texas Mutual.

The holding in Martinez v. CMR is an expensive reminder of a general contractor’s duties to ensure subcontractors have valid Nebraska workers’ compensation insurance. The Supreme Court clearly placed the burden on the general contractor to verify a workers’ compensation policy is in place – failure to so verify means the general contractor may be on the hook for expenses associated with the injuries of subcontractor employees.

For questions regarding Nebraska workers’ compensation settlements contact Baylor Evnen attorneys Jenna Christensen or Paul Barta.