Contractors Don’t Let Your Workers Comp Insurance Lapse

            Contractors at my construction seminars have heard me drone on about the importance about maintaining their workers compensation insurance and keeping their contractors license valid. Failure to do so can have catastrophic results. Here is a new case that proves that point.

            ABI was a subcontractor to Balfour Beatty Construction on a large elementary school project. When ABI began its work, it had a worker’s comp insurance policy through State Compensation Insurance Fund. ABI and the State Fund had a beef about premiums due and ABI stopped paying. The State Fund issued a notice of cancellation.

            Subcontractor ABI kept working on the project while it continued to dispute State Fund’s claims for monies due. Ultimately the accounting dispute was resolved and the State Fund retroactively issued compensation insurance covering the period during the construction project.

            Balfour Beatty refused to pay ABI for its work. ABI sued. Balfour Beatty defended claiming ABI was not licensed during construction of the project when there was no compensation coverage. That’s our case.

Contractor’s License Law

            Business and professions codes section 7031 requires that contractors and subcontractors be licensed at all times during construction of the project. Failure to be licensed is a bar to recovery of monies due even if the work was properly performed by, in this case, the temporarily unlicensed subcontractors ABI.

            Contractors and subcontractors with employees are required to maintain workers comp insurance coverage and licenses are suspended for failure to do so. That’s what happened to ABI.

            The legal question was whether ABI could successfully sue Balfour Beatty for monies due even though for the latter part of the project, its license was suspended. ABI argued that the insurance coverage issued was retroactive to cover the time of construction. Does retroactive insurance coverage cure the lapse of ABI’s licensing?

Court of Appeal Ruling

            The District Court of Appeal ruled against ABI in favor of Balfour Beatty noting that for the latter part of the project ABI’s license had been suspended for failure to maintain comp insurance. If ABI could prove its insurance coverage lapsed due to failure “due to circumstances beyond its control” then arguably the license could be reinstated. The Court determined that because ABI could have paid the premiums while disputing them and therefore maintain its license, the failure to have a license was not due to circumstances outside its control.

            In the end ABI does the work and does not get paid. Harsh penalty for sure.

            Take home lesson is clear, maintain your compensation insurance coverage and license or face draconian results: do the work and don’t get paid.

Jim Porter is a retired attorney from Porter Simon licensed in California and Nevada. Porter Simon has offices in Truckee California and Reno, Nevada. These are Jim’s personal opinions. Jim’s practice areas included:  real estate, development, construction, business, HOA’s, contracts, personal injury, accidents, mediation and other transactional matters.  He may be reached at jameslporterjr@gmail.com.    Like us on Facebook. ©2025