State News : North Carolina

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North Carolina



When principal contract is insured but carrier defaults, subcontractor liable

Jose Clemente Hernandez Gonzalez had worked for Worrell Construction as a carpenter and then crew leader for about ten years. On March 24, 2009, he rode home from a job site as a passenger in Defendant Worrell’s vehicle. Defendant Lamm was the general contractor for the project and Defendant Worrell was the sub-contractor. On the way home, another employee drove Defendant Worrell’s vehicle off the road and into a tree. As a result of the accident, Gonzalez was rendered a quadriplegic. Defendant Worrell was insured by Cincinnati Insurance Co., and Defendant Lamm was insured by Builders Mutual.

The matter was initially heard by Deputy Commissioner Adrian Phillips, who found Defendants Worrell/Cincinnati and Defendants Lamm/Builders Mutual jointly and severally liable to Gonzalez for his injury. Both Defendants filed separate Motions for Reconsideration: Cincinnati on the basis that it had cancelled its policy with Worrell and Lamm/Builders Mutual seeking to have the Deputy modify the award, both of which were denied. Defendants appealed to the Full Commission who affirmed the Deputy Commissioner’s award but held that Defendant Lamm/Builders Mutual would only be liable for disability benefits if Defendant Cincinnati defaulted in payments. Defendant Cincinnati appealed to the Court of Appeals, and Defendant Lamm/Builders Mutual filed a cross-appeal.

On June 19, 2012 in Gonzalez v. Worrell et al., the Court of Appeals concluded that the Commission did not err in finding Defendant Cincinnati jointly and severally liable to Gonzalez. The Commission relied on N.C.G.S. §§ 58-36-105(b) and 58-36-110(b) and found Cincinnati’s policy was still in effect at the time of the accident. Cincinnati was unable to produce a "green card" or other proof of service of the cancellation notice. Despite the testimony of a postal worker that the cancellation had been delivered, the Court noted that Cincinnati could only establish that the cancellation process had started but not that it was completed. There was also evidence that Worrell continued to pay premiums and that Cincinnati had failed to provide a non-renewal notice. As a result, the policy was in effect on the date of the accident and Cincinnati was jointly liable to Gonzalez for his injury.

The Court also found that the Commission did not err in finding Defendants Lamm/Builders Mutual liable because of their failure to obtain a certificate of insurance. Defendants Lamm and Builders Mutual became liable to the same extent as the subcontractor under N.C.G.S. § 97-19 by failing to obtain the certificate of insurance for the project that resulted in Gonzalez’s injury. The Court further held that Defendants Lamm/Builders Mutual liability in the event that Cincinnati defaulted on its payments was not against legislative intent or public policy.

On December 12, 2012, the Supreme Court allowed Defendant Cincinnati Insurance Co.’s petition for discretionary review. On April 12, 2013, the Supreme Court affirmed the Court of Appeals but since only six Justices participated in the decision and the panel was equally divided, the decision of the Court of Appeals was left undisturbed and without precedential value.