What Are a General Contractor’s Options in Maryland When a Subcontractor Cancels Its Workers’ Compensation Policy Without Notice?

During my years handling workers’ compensation cases for employers in the construction industry, I have quite often faced the following scenario: “My subcontractor was uninsured by I had no idea; what can I do?”

In Maryland, general contractors (GC’s) face unique challenges when a subcontractor (SC) unexpectedly cancels their workers’ compensation policy without notice. This scenario not only exposes the GC to liability as a statutory employer, but also jeopardizes compliance with state laws.

Understand the Legal Landscape in Maryland

Under Maryland law, general contractors can be held liable for injuries sustained by a subcontractor’s employees if the subcontractor does not have workers’ compensation coverage. Under the Maryland Workers’ Compensation Act, any principal contractor who sublets any part of a contract is considered the statutory employer of the subcontractor’s employees for the purposes of workers’ compensation, if the subcontractor fails to maintain proper insurance.

In that scenario, the GC may be required to cover medical expenses, wage loss and/or disability benefits in a given claim while standing in the place of the SC.

Immediate Actions Upon Discovery

If a subcontractor cancels their policy without notice, the general contractor should:

1.       Immediately Stop Working with the Subcontractor

Immediately stop the subcontractor’s work on-site until proof of reinstated or new coverage is provided. Continuing work without coverage puts the GC at high financial and legal risk.

2.       Request Written Proof of Insurance

Require the subcontractor to provide a Certificate of Insurance (COI) showing current and active workers’ compensation coverage. Always verify the authenticity by contacting the listed insurance provider or broker. On several occasions, I have seen a falsified COI and the GC is provided no recourse.

3. Notify Your Own Insurance Provider

Inform your insurance company or broker about the situation. They can advise whether your policy covers any potential claims and help prevent gaps in coverage.

Contractual Remedies and Risk Mitigation

Well-drafted subcontract agreements are critical. Your subcontract should include:

• Indemnification Clauses: These can help shift responsibility back to the subcontractor if a lapse in coverage occurs.

• Insurance Requirements: Clearly mandate continuous workers’ comp coverage and require advance notice (typically 30 days) for any cancellation.

• Right to Audit: Reserve the right to request proof of insurance at any time and conduct audits of the sub's insurance status.

If your contract has these protections, you may be able to file a separate contract lawsuit for any liability you incur due to their lapse in coverage.

Report the Subcontractor to Authorities

If the SC refuses to remedy the situation or resumes work without coverage, you may report them to the Maryland Workers' Compensation Commission (WCC) or the Maryland Insurance Administration. Operating without required coverage may result in penalties, fines, or a stop-work order.

Consider Using a Wrap-Up Insurance Program

On large projects, GC’s sometimes opt for a wrap-up insurance policy (Owner-Controlled or Contractor-Controlled Insurance Program—OCIP/CCIP). These policies cover all contractors and subcontractors on a project under a single policy, eliminating coverage gaps and streamlining claims handling.

Though costly, these programs can provide peace of mind when subcontractors’ insurance compliance is inconsistent.

Future-Proofing Your Operations

To avoid future risks:

• Use third-party insurance tracking services to monitor SC compliance.

• Implement standard operating procedures as part of your company’s protocol for validating and monitoring COIs.

• Pre-qualify subcontractors based on their safety records and insurance history.

Final Thoughts

In Maryland, GC’s cannot afford to be passive about a SC’s insurance status. The cancellation of a workers’ compensation policy without notice places significant liability on the GC. Prompt action, strong contractual safeguards, and proactive risk management strategies are essential tools to mitigate exposure and ensure legal compliance.

Alex Dobrusin