What Happens When Your Sub's Workers' Comp Lapses Mid-Project

The Scenario Every GC Dreads

You awarded the framing package six weeks ago. Your sub had active workers' comp coverage at the time—you checked the CSLB website, maybe even got a COI. Then, mid-pour, the policy lapses. Nobody tells you. A laborer falls from scaffolding the following Tuesday.

This is not hypothetical. California Labor Code Section 3700 requires every employer to secure workers' comp coverage for employees. When that coverage lapses—even for a single day—the consequences cascade upward to the general contractor.

Your Legal Exposure as the GC

Under California Labor Code Section 2750.5, a general contractor is the "statutory employer" of all workers on site, including subcontractor employees. When a sub's WC lapses:

1. You Inherit the Claim

If the sub has no active coverage and a worker is injured, the claim flows up to the next insured entity—you. Your WC carrier pays the claim, then typically raises your Experience Modification Rate (EMR). An EMR increase of even 0.1 points can add $10,000-$50,000 to your annual premium depending on your payroll volume.

2. CSLB Disciplinary Action

Under Business and Professions Code Section 7125, knowingly allowing an uninsured subcontractor to work on your project is grounds for license discipline. The CSLB has suspended GC licenses for this exact scenario.

3. OSHA Exposure

Under OSHA's multi-employer citation policy, a general contractor can be cited for hazards on a worksite regardless of which employer's workers are affected. An uninsured sub working on your site compounds the regulatory risk.

4. Personal Liability

If the sub is unincorporated (sole proprietor or partnership), the injured worker may pursue a civil lawsuit directly against the GC. Workers' comp exclusivity—which normally bars lawsuits—does not apply when the employer lacked coverage at the time of injury.

How WC Lapses Happen

Most GCs verify coverage at contract signing and assume it stays active. But WC policies cancel for many reasons during a project:

• Missed premium payments: The most common cause. Small subs operating on thin margins may let payments slip, especially in winter months when cash flow tightens.
• Audit disputes: Carriers audit actual payroll against estimated payroll. If the sub underreported at inception, the audit results in a large additional premium. Failure to pay cancels the policy.
• Claims history: A carrier may non-renew a policy at its annual renewal date due to excessive claims. The sub may not find replacement coverage immediately.
• Classification changes: If the sub takes on work outside their policy's classification codes, the carrier may void coverage for that work.
• Exempt status abuse: Some subs file a Certificate of Exemption claiming no employees, then hire workers. The exemption does not cover employees.

The critical problem: CSLB updates license records periodically, not in real time. A sub's WC can lapse today and their CSLB profile may still show "Active" for days or weeks.

The Real Cost of a Mid-Project Lapse

Consider a concrete example. A framing sub with 8 employees loses WC coverage on March 15. On March 28, a worker falls and breaks their wrist—a moderate injury.

Total exposure from a single moderate injury with a lapsed sub: $100,000 to $220,000+. A fatality or permanent disability claim can exceed $1 million.

Why Checking Once Is Not Enough

The standard practice—verify WC at contract signing—is a point-in-time snapshot. It tells you coverage existed on that day. It tells you nothing about tomorrow.

California contractors operate in a high-churn insurance market. According to the Workers' Compensation Insurance Rating Bureau (WCIRB), the state processes over 400,000 policy transactions per year. Policies are written, cancelled, and reinstated constantly.

Even COIs (Certificates of Insurance) have limitations:

• COIs represent coverage at the time of issuance only
• Most COIs do not auto-update when a policy is cancelled
• Cancellation notices to certificate holders are often delayed 30 days
• Some subs provide doctored or expired COIs

The only way to catch a lapse before it becomes your liability is continuous monitoring.

What To Do If You Discover a Lapse

If you discover a sub's WC has lapsed mid-project:

1. Stop their work immediately. Under Labor Code 3710.1, it is unlawful to employ workers without WC coverage. Allowing them to continue working exposes you further.
2. Document the discovery. Note the date, how you found out, and what action you took. This documentation protects you in any subsequent investigation.
3. Notify the sub in writing. Require proof of reinstated coverage before any workers return to site.
4. Check for unreported injuries. If any injuries occurred during the lapse period, you need to report them to your own carrier immediately.
5. Consider termination. Review your subcontract. Most well-drafted subcontracts allow termination for cause when a sub fails to maintain required insurance.

Prevention: Continuous Monitoring

The construction industry has moved past point-in-time verification for everything else—schedule updates, budget tracking, quality inspections. Compliance monitoring should be no different.

Continuous monitoring means your sub roster is checked against CSLB data on a regular cadence. When a WC policy lapses, a bond expires, or a license status changes, you get an alert—not 30 days later when a cancellation notice arrives, but within days of the change.

This is exactly what SubWatch was built for. Add your sub roster, and SubWatch monitors CSLB license status, workers' comp coverage, bond status, and federal compliance signals continuously. When something changes, you get an alert before it becomes your liability.

Additional Resources

• CA Contractor Workers' Comp: SB 216 Complete Guide
• Subcontractor Prequalification Checklist (2026)
• OSHA Multi-Employer Policy: When GCs Get Cited for Subs