Should homeowners associations carry workers compensation insurance? It is a question that many board members and property managers overlook – until something goes wrong. A landmark court case, Heiman v. Workers Compensation Appeals Board, provides a compelling answer and a cautionary tale for every HOA.

The Scenario: Montana Villas HOA

Montana Villas Homeowners Association hired Pegasus Properties as their management company. Pegasus, in turn, contracted with a man named Hruby – an unlicensed and uninsured contractor – to perform gutter installation work at the community.

During the project, Hruby employee, Freddy Aguilera, suffered a severe electrical injury while performing the gutter work. Aguilera subsequently filed for workers compensation benefits – not just against Hruby, but against both the homeowners association and the management company.

The Court Decision

The court found that both the Montana Villas Homeowners Association and Pegasus Properties were liable as employers for workers compensation purposes. Even though neither entity directly employed Aguilera, the court determined that by hiring an unlicensed, uninsured contractor, they had effectively taken on employer liability.

This case established an important precedent: homeowners associations can be held liable for workers compensation claims even when they have no employees of their own.

Key Takeaways for HOA Boards

The implications of this ruling are significant for every homeowners association:

• Verify all contractors are properly licensed and insured. Before hiring any contractor, confirm their license status and request proof of current workers compensation and general liability insurance.
• Obtain current certificates of insurance at the time of contract signing. Do not rely on old certificates or verbal assurances. Get current documentation every time.
• Recognize that even small jobs carry risk. It does not matter if it is a major renovation or a minor repair – if an uninsured worker is injured on your property, the association may be held responsible.
• All associations should carry workers compensation coverage. Regardless of whether you have direct employees, having this coverage protects the association from potentially devastating claims.

The Bottom Line

Hiring an unlicensed and uninsured contractor is never a good idea, no matter how small the project or how much money it seems to save upfront. The Heiman v. Workers Compensation Appeals Board case clearly demonstrates that the financial consequences of cutting corners can far exceed any initial savings.

Every homeowners association should review their insurance coverage and contractor hiring procedures to ensure they are adequately protected. The cost of proper workers compensation insurance is minimal compared to the potential liability exposure of going without it.