Contractors, Be Sure to Maintain Your Workers' Compensation Insurance

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A contractor's failure to maintain its workers' compensation coverage can have disastrous consequences. Unless the contractor is exempt from having workers' compensation insurance, its failure to maintain such insurance results in an automatic suspension of its license. (Business & Professions Code Section 7125.2.) This, in turn, can prevent a contractor from recovering payment for work done during the period in which the license was suspended.

Section 7125.2 states: "The failure of a licensee to obtain or maintain workers' compensation insurance coverage, if required under this chapter, shall result in the suspension of the license by operation of law in accordance with the provisions of this section,...." Not having a license during its performance on the project prevents that contractor from later recovering payment for the work it did on that project, unless it can prove it substantially complied with licensing requirements. (Business & Professions Code Sections 7031(a) and (e).) Failure to maintain licensure may also result in a court ordering the contractor to disgorge all of the payments it received during construction. (Section 7031(b); Alatriste v. Cesar's Exterior Designs Inc., 183 Cal.App.4th 656 (2010).) These harsh results highlight the importance of a contractor keeping its workers' compensation insurance current.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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