The Silent Killer: Why Your Ghost Workers’ Comp Policy Could Destroy Your Contracting Business
- Wade Millward
- 2 hours ago
- 4 min read
Quick Summary
Ghost policies are not a solution for contractors who use subcontractors—period.
Waivers and COIs create a false sense of security and won’t protect you in court.
The only real protection: carry your own workers’ comp policy to cover uninsured subcontractors, backed by strict COI collection and verification.
You just landed a great job. The client is a stickler for details, but the money is worth it. They ask for a Certificate of Insurance (COI) for workers’ compensation. A ghost policy seems like the smart move—it’s cheap, excludes the owner, and gets you the document you need. For a solo operator with no employees, maybe that’s okay.
But if you use subcontractors, this cheap piece of paper becomes a financial time bomb. It isn’t just about an audit bill—it’s about an exposure that can bankrupt your business. Here’s why ghost workers’ comp policies are a silent killer—and why they should never be used by contractors who rely on subs.
The Myth: “The Policy Excludes Just the Owner”
A ghost policy is designed for a business with no employees. It excludes the owner from coverage, so if you get hurt, there’s no protection.
But here’s the trap:
In most states, subcontractors without their own workers’ comp are treated as your employees.
If they get hurt, you’re responsible for their medical bills, lost wages, and more.
Your ghost policy won’t step in—it excludes you and doesn’t cover them either.
And here’s another dangerous myth: some contractors believe they’re protected because a subcontractor signed a waiver of liability. The truth is, those waivers rarely hold up. A seriously injured worker can still hire an attorney and file a lawsuit. Courts almost always prioritize the worker’s right to compensation over a signed waiver.
Key takeaway: Ghost policies don’t protect you, and subcontractor waivers won’t either. Liability still falls on you.
The Audit Nightmare: The Surprise Bill That Can Sink You
Every year, insurers audit contractors. They comb through payroll and 1099s looking for uninsured subs.
No valid COI? The auditor reclassifies the subcontractor as your employee.
You’re hit with retroactive premiums on every dollar you paid them.
Example: Pay a subcontractor $50,000 without a COI, and you could face a $5,000–$10,000 audit bill, depending on your state’s rates.
Stats that matter:
Up to 2.1 million construction workers are misclassified or off the books nationwide.
10–30% of employers are flagged for misclassification in audits.
The average workers’ comp claim costs $41,353 (National Safety Council).
Key takeaway: That “cheap” ghost policy can cost more than carrying real coverage.
The Illusion of Control: COIs and Waivers Don’t Save You
Many contractors think collecting a COI or waiver solves the problem. It doesn’t.
A COI is just a snapshot. It may already be expired, or canceled the day after it’s issued. Unless you’re listed as “certificate holder,” you won’t know.
A subcontractor waiver or “hold harmless” agreement rarely stands up in court. Workers’ comp laws are written to protect the worker, not you.
Key takeaway: A certificate is just a piece of paper. Unless you’re verifying it constantly, it won’t protect your investment.
The Lawsuit and Liability Trap
If a subcontractor without coverage gets hurt, you are exposed—no matter what waiver they signed.
They can claim negligence: unsafe jobsite or poor supervision. They can claim misclassification: that they were legally your employee, not an independent contractor.
Even if you eventually win, the legal costs can cripple your business. If you lose, you could be liable for lifetime medical bills and lost wages.
Key takeaway: A ghost policy won’t protect you in court.
Why This Matters Even More for Smaller Contractors
Think about the industries where ghost policies are most common—fencing, temporary walls, cabinets, carpentry, painting.
Most of the subcontractors in these trades don’t carry insurance. That means the risk of an uninsured worker stepping on your site is almost guaranteed.
Telling a small contractor, “Just get COIs and verify them every time,” isn’t a real solution. Unless you’re calling the insurance company every week to confirm coverage is active, you’re relying on paper that could be worthless.
The Real Solution: Carry Workers’ Comp Yourself
If you use subcontractors, a ghost policy is not a solution. The only way to truly protect your business is to carry a workers’ comp policy yourself, so if an uninsured subcontractor slips through, you’re covered.
Combine that with strict practices:
Require a current COI from every subcontractor.
Verify policies directly with the issuing agent.
Enforce a “no COI, no work” policy on your jobsites.
Key takeaway: Protecting your business means having your own coverage. Ghost policies only create risk.
Final Word: Don’t Let a Ghost Haunt Your Business
You work too hard to risk it all on a policy that was never meant to protect you. Ghost policies are not a solution—they are a liability.
Your business is your investment. You set the rules. You carry the responsibility. And if you use subcontractors, the only way to truly protect yourself is with a workers’ comp policy that picks up uninsured subs.
Before your next job:
Review your subcontractors’ insurance.
Ask yourself: “If one of them got hurt today, am I really covered?”
If the answer is no, it’s time to put real protection in place.
That’s how you protect your business, your investment, and your future.