Builder's lack of contractor status at time of injury precludes liability

In Arkansas, the test for determining whether a builder is a prime contractor is whether there is a duty to a third party and whether all or part of that duty is subcontracted to another entity.

Case name: Rima v. M & S Framers, Inc., et al., No. CA09-100 (Ark. Ct. App. 10/07/09).

Ruling: The Arkansas Court of Appeals affirmed the finding that a builder was not a prime contractor for purposes of workers' compensation liability. It dismissed as moot the subcontractor's argument that it was not an uninsured subcontractor.

Sub-subcontractor's employee not entitled to coverage from contractor (02/25/13)
NFL seeks to seal the deal against players filing in California (04/19/12)
Company's failure to pay premium results in liability for worker's injury (12/19/11)
Medicaid's payment, write-off erase employer's liability to worker (03/12/12)
Insurer's de facto denial of symptom doesn't trigger penalties, fees (02/06/12)

What it means: In Arkansas, the test for determining whether a builder is a prime contractor is whether there is a duty to a third party and whether all or part of that duty is subcontracted to another entity. A finding that a builder had not started work as a building contractor at the time a worker was injured may prohibit the builder from being responsible for the worker's injuries even though the builder later becomes licensed.

Summary: A roofer for a framing subcontractor was injured in a fall at work. He filed a claim alleging the framer was an uninsured subcontractor and that the builder was liable as a prime contractor. Under Arkansas law, when a subcontractor fails to obtain workers' compensation insurance, the prime contractor is liable to the employees of the subcontractor.

The Court of Appeals affirmed the finding that the builder was not liable as a prime contractor. Although the builder was licensed at the time of the hearing, it had not begun work as a prime contractor when the worker was injured. The court explained even though the home was ultimately sold to a third party, it was originally intended for the builder's personal use. It applied the test for determining whether the builder owed a duty to a third party and found that since the builder originally intended the home to be his own, there was no third-party duty, as required to be a prime contractor.

The court also rejected the subcontractor's argument that a clause in the builder's deed requiring construction of a residential dwelling on the lot "within three years" was a duty to a third party that compelled a finding that the builder was a prime contractor. The court noted there was reference to a mortgage securing a construction loan, but that it was evident the home was not being built for a specific third party. Instead, it was to ensure the security of funds that were advanced for the builder's construction loan.

The subcontractor cross-appealed that it was not an uninsured subcontractor. However, as there was sufficient evidence that the builder was not a prime contractor, the court dismissed this point as moot.

Read more at the WORKERSCOMP Forum^TM homepage.

December 10, 2009

Newsletter Sign-up