Property manager's checklist: Worker’s compensation pitfalls

A guest series from Geoffrey Englehart, WA Insurance Group, Inc.

To the general public, property management is simply collecting rent, paying bills, and coordinating maintenance requests and repairs. To those of us involved in the property management industry, we know that there is much more to it; we know that every aspect of the industry involves risk. Although this is a known-fact, risk management is not generally given the time it deserves, or the necessary time to take advantage of its benefits. In this article, I’m going to highlight one key area of risk that could be costing your business money or could eventually cost you your entire business.

If managed properly and used correctly, worker’s compensation is beneficial to all parties involved if an unexpected incident were to occur. However, if managed improperly and used carelessly, worker’s compensation could spell disaster for your company. Let me walk you through an example of how a “minor oversight” could possibly turn into a devastating mistake. This may have already happened to you.

WA Property Management Company hires a contractor, Bob’s Paint Company, to paint the exterior of their largest apartment complex. Prior to any work being done, they make sure that Bob’s Paint Company is insured to the proper limits in case of any damage to the building’s exterior or any of the residents’ property.

A week has passed and Bob’s Paint Company is ahead of schedule and ready to be done in the next few days. Before starting their work, Bob’s Paint Company notices that the previous night’s storm has left the premises wet and a little unstable for the ladder. Seeing as they’ve had 15 years of experience, they figured that they could go ahead as scheduled. Not even an hour later, the ladder gives out due to the moist and unstable grounds beneath it and Jim falls from three stories sending him to the hospital with a broken leg.

WA Property Management Company hears of the incident and realizes that they did not receive proof of Bob’s Paint Company carrying worker’s compensation insurance. Frantically calling everyone looking for this proof, they come to realize that Bob’s Paint Company does not carry worker’s compensation insurance and that they will be held liable for the injured worker. Ambulance costs, emergency room costs, surgery costs, time off, and many other incurred costs will now be the responsibility of WA Property Management Company all because they did not ask for proper documentation up front. Bob’s Paint Company is an example of a contractor who may do quality work, but should never be hired without carrying the proper insurance even if their bid is the lowest. There are plenty of quality contractors out there who are not carrying the proper insurance. Do not let this happen to you. Ask for all of the proper documentation up front before any work is done.

Let’s walk through one of the more important, and costly indirect costs arising from this situation. Yes, there are plenty of direct costs, but those costs come and go. The result of an accident like this has on your Experience Mod, will affect you for three years. All claims relating to Worker’s Compensation insurance affect not only your Experience Mod, but your premium for the following three years. Hypothetically, this accident could raise your Experience Mod from a 1.00 (industry average) to a 1.30. Now, you are paying 30% more than your average competitor in premiums for your Worker’s Compensation insurance. What does a 30% increase in premiums look like for your company? Are you prepared to make up that difference? Now let’s say that your largest competitor takes a proactive approach to their Worker’s Compensation program and has an Experience Mod of .80. That is a 50% difference in premiums and not a differential you can overcome in one year! Your competition will love that advantage, but you will agonize over your one “minor oversight” that is going to cost you potentially hundreds of thousands of dollars for at least a three year span.

Why would you ever leave yourself open to risk that you have zero control over? Would you ever not insure your $10 million apartment complex? Would you ever take on a tenant with no proof of income? Leaving yourself open to uncontrollable risk could not only hinder the profitability of your company, but it could cost you your entire business. You have to make sure your insurance program is in place and you have to be just as confident in the insurance program of any contractors you may do business with. Many businesses are not taking proper precautions to prevent situations like this. Don’t let that be you!

Stay tuned for the next item in our Property Management Checklist: Controlling Your Experience Mod.

Geoffrey L. Engelhart

Risk & Business Insurance Specialist

WA Insurance Group, Inc.

952.500.3237