Can Comp-Exempt Sub Owner Sue Contractor for Work Injury? Miss. Court Says ‘No’

It’s a question that has cropped up in state courts only on rare occasions: If the owner or officer of a subcontractor firm opts out of workers’ compensation coverage for himself, can he then sue the general contractor for negligence when he’s injured on the job?

The Mississippi Supreme Court last week answered with a strong “no” to that question, reinforcing and extending Mississippi case law laid down 42 years ago – but leaving a severely injured business owner without compensation.

Hemphill Construction Co. had established immunity from tort litigation by contractually requiring the subcontractor to obtain workers’ compensation coverage, the court said in the Harris vs. Hemphill Construction Co. opinion posted Dec. 12.

“Hemphill did all it could to ensure that it was hiring a financially responsible subcontractor who had secured coverage for its employees,” Justice James Kitchens wrote for the three-judge panel. “It was Harris’s own action, i.e., withdrawing from coverage under the insurance policy, that deprived him of benefits” under the state workers’ compensation statute.

The justices leaned on a 1982 Mississippi Supreme Court decision known as Doubleday vs. Boyd Construction Co., which held that workers’ comp is the exclusive remedy for injured workers if the subcontractor carried comp insurance on its employees. The Doubleday opinion found that “it was not the Legislature’s intent ‘to subject a general contractor to common law liability if he complied with § 71-3-7 by requiring the subcontractor to have workmen’s compensation insurance,'” the court noted.

The Hemphill case was complicated by questions of whether Harris was considered an employee of the subcontractor, even though he was the owner; and if, by being an officer and exempting himself from comp coverage did he cease to be an employee who would be barred from tort actions?

“The circumstances of this case made for a novel twist,” said Hemphill’s attorney, Wesley Williams, of the Markow Walker firm in Jackson. “I only found a handful of cases around the country where the owner of a company had excluded himself then had this type of an issue.”

Mississippi law has long recognized general contractor tort immunity as long as the subcontractor obtains workers’ comp coverage on its employees. That encourages GCs to hire only reputable subs that bother to protect their workers, Williams said. This case was a little different because the subcontractor firm actually had comp coverage but the owner had opted out, probably to save money on his firm’s workers’ comp premiums.

The case began in 2020. Gay Lynn Harris was an owner and officer at Interstate Carbonic Enterprises (ICE), a Texas-based company. Hemphill Construction had hired ICE as a subcontractor to blast coating off the walls of a section of the water treatment plant for the city of Jackson, Mississippi. That facility has been in the news in recent years due to lack of funding and maintenance, which has led to repeated water shutoffs for parts of the city.

Harris was severely injured when, while doing some work himself, he stepped on a poorly secured decking panel and fell 15 feet, the court explained. Although Hemphill had required ICE to obtain workers’ comp coverage on its employees and had secured a certificate of insurance showing the coverage, Harris had exempted himself. Mississippi law, as in most states, allows officers of companies to opt out of comp coverage.

A workers’ compensation administrative law judge held that Hemphill was not Harris’ statutory employer, and that Harris was not entitled to comp benefits. Harris did not appeal the ALJ’s decision.

But without wage replacement benefits and, perhaps, without medical benefits, the ailing Harris filed suit against Hemphill in circuit court in Jackson, alleging negligence. Hemphill moved to dismiss, arguing that it had immunity from tort claims since it had required the subcontractor to obtain workers’ compensation insurance.

The circuit court judge agreed with Hemphill. Harris appealed. The Supreme Court sided against Harris, noting that state law does not require a claimant to exhaust his workers’ comp administrative appeals process before filing suit. The justices also agreed with Hemphill’s argument that, simply by exempting himself from workers’ comp coverage Harris did not “magically cease to be an employee of ICE.”

“Thus, an executive officer’s withdrawal from an employer’s workers’ compensation policy does not mean that the officer no longer is an employee of the corporation,” the court noted. “Thus, this Court finds that Harris was an employee of ICE under the facts of this case and the applicable law.”

Thus, the subcontractor was covered by the workers’ comp system and Hemphill is protected by tort immunity.

“We find that Hemphill should not be punished and subjected to a common law tort claim when it had taken all the necessary actions to protect itself and the employees of the subcontractor,” the Supreme Court justices wrote. “Hemphill’s actions were sufficient to satisfy the statute’s requirement to secure payment as it had contractually required ICE to procure insurance.”

Williams noted that Harris’ attorneys had argued that such a ruling would leave the injured owner without a remedy. But the thinking behind the officer-exemption rule is that business owners or executives are usually in a financial position that allows them to obtain some other type of insurance, such as health or accident coverage.

The Supreme Court opinion in Hemphill upholds the trial court’s ruling. All other justices on the court concurred. Hemphill’s liability insurance company was not involved in the litigation, Williams said.