Trustee’s Liability for Contractor’s Work

Whether you are a Trustee of a trust that owns real property, a Personal Representative of a decedent’s estate that holds real property, or simply a homeowner, it is important for you to know your potential liability when you engage a contractor to perform work on the property if an employee of the contractor gets hurt on the job.

Many home service contractors do not carry worker’s compensation insurance coverage for their employees.  This is especially notable with tree service contractors.  The same men who climb trees with powerful chain saws to cut limbs and tree trunks while hanging from a rope around their waists in one of the most dangerous home service professions often find it prohibitively expensive to pay the premiums for worker’s compensation insurance, and therefore do not obtain such coverage.

The problem with that is, if one of the workers is injured on the job, even if that person is an employee of the contractor, then the law may treat such injured worker as your employee for liability purposes.  And, unless you, as Trustee or homeowner, have worker’s compensation insurance to cover this particular type of worker – and obtaining such coverage for the once in a blue moon tree cutter or other home service contractor likely is not possible – then the potential liability is unlimited.

Suppose, for example, that the Trustee of a trust that owns real property hires a contractor to remove a tree, and the climber who is cutting limbs halfway up the tree with a chain saw, has an accident and loses his arm, or cuts a gash into his head, or falls out of the tree and dies.  With worker’s compensation insurance, the liability would be limited by law and would be paid by the insurance company, but if there is no such coverage, and the worker or worker’s estate seeks recovery from the trust, then the resulting liability could bankrupt the trust, and the Trustee could potentially be held personally liable to the beneficiaries of the trust for failing to exercise due diligence and engage a contractor who has worker’s compensation insurance.

The homeowner who hires a contractor with no worker’s compensation insurance likewise risks financial ruin should the contractor or one of his employees become injured on the job.  The same holds true for the Personal Representative of a decedent’s estate if there is real property in the estate and the Personal Representative engages a contractor to perform work on the property, which the Personal Representative might do to improve the property in order to sell it.

Therefore, it is important to closely scrutinize the terms of the engagement when hiring a home service contractor.  With respect to insurance, including general liability insurance, vehicle insurance, and worker’s compensation insurance, the Trustee, Personal Representative, or homeowner should obtain a currently dated Certificate of Insurance, directly from the contractor’s insurer, and addressed to the Trustee, Personal Representative, or homeowner.  One should review that certificate closely to ensure that the limits of coverage are sufficient and that there are no excluded persons that include those who will be on-site performing the work.

Also closely scrutinize the service contract itself.  For example, while the contractor may have sufficient insurance, the service contract may place the burden of any liability on subcontractors, in which case, if you as Trustee, Personal Representative, or homeowner agree to this term, the contractor’s insurance coverage may be worthless to you.  If that is the case, be sure to strike that provision from the contract and have both parties sign to ensure that you are holding the contractor liable for all workers performing under the contract between you and the contractor, regardless of whether the contractor employs subcontractors to perform the work.

William M. Gatesman advises clients regarding their financial and estate planning concerns, assists and advises Trustees, Personal Representatives, and other fiduciaries, and serves as Trustee over trusts for clients and their beneficiaries.  If you have any questions concerning this article or related matters, please contact us.