A contractor's workers compensation policy lapses for 15 days due to non-payment of premiums. Three employees are injured during this period, resulting in $85,000 in medical costs. Under Arizona law, what is the contractor's potential liability?
Correct Answer
B) $85,000 plus potential penalties
Contractors are fully liable for all workers compensation claims during periods when coverage has lapsed, plus potential penalties and license sanctions.
Why This Is the Correct Answer
Under Arizona law, when a contractor's workers compensation policy lapses, the contractor becomes personally liable for all workplace injuries that occur during the lapse period. There are no statutory caps or limits on this liability - the contractor must pay the full amount of medical costs, lost wages, and other benefits. Additionally, Arizona imposes penalties and potential license sanctions for operating without required workers compensation coverage, making the total liability even higher than just the claim costs.
Why the Other Options Are Wrong
Option A: No liability if policy is reinstated within 30 days
Arizona law provides no grace period or retroactive protection for lapsed workers compensation policies. Reinstating coverage within 30 days does not eliminate liability for injuries that occurred during the lapse period. The contractor remains fully responsible for all claims and penalties regardless of when the policy is reinstated.
Option C: $50,000 maximum statutory limit
Arizona does not impose a $50,000 statutory limit on contractor liability for workers compensation claims during policy lapses. The contractor is liable for the full amount of all legitimate claims, which in this case is $85,000, plus additional penalties. Statutory limits do not apply to personal liability situations.
Option D: $25,000 maximum statutory limit
There is no $25,000 maximum statutory limit for contractor liability when workers compensation coverage has lapsed. The contractor must pay the full $85,000 in medical costs plus penalties. Arizona law holds contractors fully responsible for all workplace injury costs during periods without coverage.
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