If you hire a tree removal service that has a ghost insurance policy, and someone is injured on your property, you could be held responsible for all medical costs. Large variations in price quotes from different tree removal service companies are often due to one factor: workers compensation insurance. Just because a tree removal service provides a certificate of insurance showing proof of coverage does not mean it actually has real protection for its employees.
Many companies purchase what is known as a Ghost Policy by claiming either they have no employees (and pay them off the books) or that their employees are sub-contractors, which is illegal given Federal and State definitions of who may be considered a sub-contractor. By obtaining a Ghost Policy, a tree removal service is able to produce a certificate of insurance while saving anywhere from $30,000 to well over $300,000 per year depending on the size of the company.
This allows that service to offer much lower prices than it would be able to offer if it had a legitimate insurance policy. In the process of doing so, that service exploits its employees and puts you the client at great risk. If one of its employees is injured on your property, you could be held responsible for medical and related costs. Luckily, there are ways you can minimize the chance of hiring such a company.
If you are shopping around for the right tree removal service to complete your project, chances are that you have encountered some major variation in price quotes.
More often than not, this variance is due to one differentiating factor: workers compensation insurance.
In all likelihood, you are a savvy consumer and you requested a certificate of insurance (COI) from each tree removal service as proof of proper insurance coverage.
But what you might not know is that there is a dangerous secret about workers compensation insurance called the Ghost Policy. If you hire a tree removal service that operates using a Ghost Policy, and an employee is injured on your property, you could be held responsible for all medical costs.
In order to understand the Ghost Policy, it is important to first understand some background information: The tree removal service industry is a very dangerous industry.
As a matter of fact, we have a fatal accident rate that is approximately ten times the average for all industries. Insurance companies determine workers compensation insurance (workers comp) rates for a trade based on the incidence of accidents, fatalities, etc. Needless to say, our rates are very high. Typically, a tree removal service will pay anywhere from $25 to $50 per $100 of wages for workers comp. To put that in perspective, workers comp for a clerical position is about $0.33 (that is 33 cents) per $100 in wages. Now let us do the math: a small tree removal service with two to three employees will pay around $120,00 in annual wages, which translates to $30,000 to $60,000 in annual insurance premiums.
A mid-size tree removal service with seven to sixteen employees will typically pay $250,000 to $600,000 per year in wages, which is $62,500 to $300,000 for workers comp per year.
In comparison, the Ghost Policy costs around $750 to $1000 per year. But it is designed to provide workers compensation insurance for a contractor or sub-contractor who has no employees. The benefit is that an individual can exclude himself from the policy, thus assuming all risks in the event of an accident. Why would he want to do this? Because many job and contracts require proof of workers comp. As such, this policy is simply a cheap way for an individual to obtain a COI demonstrating proof of workers compensation insurance. In reality, it is an insurance policy that does not provide actual benefits. Rather, it allows a company to pretend coverage exists when it really does not.