Workers’ Compensation Insurance for Michigan Condo Associations and HOAs: Legal Requirements & Risk Management
Many Michigan condominium associations and HOAs understand the value of general liability or directors and officers insurance. However, another type of coverage, workers’ compensation insurance, is less well-known but can be extremely valuable. Whether your community association has staff, hires vendors, or relies on volunteers, it’s crucial to know when workers’ compensation insurance is legally required in Michigan and when it might still be beneficial to carry it, even if not mandated.
Who Must Carry Workers’ Compensation Insurance in Michigan?
Under the Michigan Worker’s Disability Compensation Act of 1969, specifically MCL 418.115 , an employer must have workers’ compensation insurance if:
- It employs three or more workers at any time, including part-timers, or
- It employs one or more workers working 35 or more hours weekly for 13 or more weeks.
If your community association directly employs people, such as maintenance staff, managers, or janitorial workers, and meets either of these conditions, it is legally required to carry workers’ compensation insurance. Even if your condominium association or HOA has no direct employees, getting this insurance can still benefit your community through the advantages outlined below.
Why Community Associations Should Consider Coverage—Even If Not Legally Required
Even if your association lacks direct employees, it might still gain advantages from obtaining a workers’ compensation insurance policy. Here’s the reason:
Volunteer Coverage
Most Michigan condominium and HOA boards are made up of volunteers. While standard workers’ compensation policies usually don’t cover unpaid workers, associations can buy an “If Any” policy with a voluntary compensation endorsement to provide coverage.
This can help cover:
- Injuries to board members or committee volunteers while they are performing their duties
- Legal defense or medical expenses related to volunteer injuries
Independent Contractor Liability: The Statutory Employer Risk
Michigan associations often hire contractors for landscaping, snow removal, or janitorial work. However, if a contractor does not have workers’ compensation insurance, the association might be deemed a statutory employer under Michigan law, making it liable for any injuries to the contractor’s employees.
In McQueer v Perfect Fence Co, 502 Mich 276, 288; 917 NW2d 584 (2018), the Michigan Supreme Court discussed the statutory employment relationship under the Michigan Worker’s Disability Compensation Act of 1969:
“[MCL 418.171(1)] sets forth a statutorily imposed employment relationship, under which an employer assumes the role of a “principal” by contracting with an independent contractor, referred to as the “contractor,” for the performance of any work. The principal becomes liable for the payment of workers’ compensation benefits to “any person employed” by the contractor for injuries sustained while performing any work on behalf of the principal, provided that the contractor is either not subject to the [Act] or has failed to obtain adequate insurance as required by the [Act]. Subsection (1) thus creates a tripartite employment relationship among the principal, the contractor, and the contractor’s employees.”
See also Williams v Lang (After Remand), 415 Mich 179, 194, 327 NW2d 240 (1979) (opinion by Williams, J.), which set the criteria for a contractor’s employee to qualify for workers’ compensation benefits from a principal.
“[T]here must be: (1) a contract between the principal who is covered by the [Act] and a contractor employer who is not covered; (2) the injury must occur (a) during the execution of work under the contractor which (b) had been “undertaken by the principal.” In short, the principal must pay benefits to an employee under the following two conditions: (a) where the injury occurs while the employee is working under a contractor, and (b) where the work has been “undertaken by the principal.” These are the sole statutory conditions. There is nothing in the statute that limits or explains “undertaken.”
“We submit that work “undertaken by the principal” clearly means work which the principal contracts for or undertakes with the contractor and that the language of the statutory provisions permits no other conclusion or embroidery.”
In other words, “Section 171 thus effectively works as a “safety net” to protect employees of contractors who do not have adequate workers’ compensation insurance.” McQueer, supra at 289.
If an employer is a statutory employer under Section 171, the exclusive remedy provision of Section 131 of the Act, MCL 418.131 applies, limiting the employee’s legal remedies against the employer for injury or occupational disease. Dagenhardt v Special Machine & Engineering, Inc, 418 Mich 520, 529–530; 345 NW2d 164 (1984); Smith v Park Chemical Co, 154 Mich App 180, 185; 397 NW2d 260 (1986).
Section 131 provides, in pertinent part:
(1) The right to the recovery of benefits as provided in this act shall be the employee’s exclusive remedy against the employer for a personal injury or occupational disease. The only exception to this exclusive remedy is an intentional tort.
Burger v Midland Cogeneration Venture, 202 Mich App 310, 314; 507 NW2d 827 (1993).
Therefore, if an employee of an independent contractor not covered by the Act or of an uninsured independent contractor is considered the association’s employee after an injury, the association could face lawsuits and financial liability as the employee’s statutory employer under Michigan workers’ compensation law.
How to Safeguard Your HOA or Condo Association
Require Valid Insurance Certificates from Every Contractor
Before engaging any contractor, ensure you obtain a current certificate of insurance that:
- Verifies workers’ compensation coverage
- Designates your association as an additional insured
Check these certificates annually, not only when signing the contract, as policies can lapse or be canceled during the term.
Vet Subcontractors
Many contractors employ subcontractors who must also have appropriate insurance; otherwise, your association could still be held responsible.
What Is an “If Any” Policy and Voluntary Compensation Endorsement?
An “If Any” workers’ compensation policy is designed for businesses and other organizations without employees who want coverage in place if they hire staff during the policy term. A voluntary compensation endorsement provides coverage for unpaid persons like board members or volunteers, who are not considered “employees” under Michigan law. This type of policy is especially suitable for Michigan community associations that rely on volunteers, occasionally hire temporary workers, or aim to lower their liability risk.
Penalties for Not Maintaining Workers’ Compensation Insurance
Michigan law imposes severe penalties for not maintaining workers’ compensation insurance. Fines can reach up to $1,000 per day for each day of noncompliance, and criminal penalties, including imprisonment for up to 6 months, may also apply. See MCL 418.641 for the list of penalties.
Final Thoughts: Insurance as a Shield for the Board
Purchasing workers’ compensation insurance demonstrates your board’s commitment to due diligence and proactive risk management against legal and financial liabilities, even when not legally required.
This modest investment can:
- Prevent costly liability claims
- Shield board members and volunteers
- Improve vendor relationships
- Guarantee legal compliance
Need Help Navigating Insurance Requirements?
If you’re uncertain whether your Michigan condominium association or HOA requires workers’ compensation insurance, or if you need a legal review of your existing vendor contracts and insurance policies, contact Hirzel Law. Our community association lawyers can assist your board in minimizing risks and fulfilling its legal responsibilities.
Chris Jacobson, Esq., is a Senior Attorney with Hirzel Law, PLC, specializing in general counsel matters and document amendments. Mr. Jacobson earned his LL.M. in Taxation from Wayne State University Law School in 2011. He received his Juris Doctor from Cooley Law School in 2006, graduating with Certificates of Merit in Advanced Writing, Research and Writing, and Business Planning, and was awarded the Fitzgerald Class Honors Scholarship. He completed his undergraduate studies cum laude at Western Michigan University’s Lee Honors College in 2003. Before joining Hirzel Law, Mr. Jacobson served as a Supervising Staff Attorney at Honigman LLP, where he gained extensive experience in both the public and private sectors. His legal career is marked by a commitment to excellence and a collaborative approach to resolving complex legal issues. He can be reached at (248) 478-1800 or cjacobson@hirzellaw.com.
