Zero Exposure Workers Comp: Ghost Policies Inflating GC Mods

A subcontractor hands you a certificate of insurance. It names a real carrier. It lists a real policy number. Workers' comp coverage: confirmed. But behind that certificate sits a zero exposure workers' comp policy, one that reports $0 payroll and was never designed to cover anyone doing any work.

Tennessee tried to fix this. SB 1579, the Zero Estimated Exposure Policy Act, would have required subs holding these policies to disclose their zero-exposure status to every general contractor (GC) they contract with. The bill was deferred to summer study in March 2026. The problem it names hasn't gone anywhere.

What a Ghost Policy Is and Why It Exists

A zero exposure policy (also called a "ghost policy") is a minimum-premium workers' compensation (WC) policy purchased by a construction subcontractor who reports $0 in payroll. Tennessee law requires every construction service provider to carry WC insurance regardless of headcount (TCA § 50-6-902). Sole proprietors with no employees can register for an owner exemption through the state's Bureau of Workers' Compensation. But some skip that registry and instead buy a ghost policy for $750 to $1,200 a year. The policy is real. The certificate it generates looks like any other certificate of insurance (COI). It just doesn't cover anyone.

These aren't forgeries. The Escobar case in Florida involved fabricated certificates backing nonexistent coverage. Ghost policies are different. The carrier issued the policy. The policy number is valid. But it was written to cover zero employees performing zero work. When the sub puts a crew on your job site, those workers aren't covered by that policy.

The Claim That Follows a Zero Exposure Workers Comp Policy

Here's what plays out. A sub with a ghost policy puts four framers on your commercial job. One falls from a scaffold. The sub's policy has zero exposure and won't respond to the claim. Under most state WC statutes, the GC is the statutory employer for uninsured subcontractor employees. The claim goes on your policy.

According to the National Council on Compensation Insurance (NCCI), the average workers' comp lost-time claim cost $47,316 for accident years 2022-2023 (NCCI, 2025). Falls from elevation in construction typically run higher. That's a primary loss on your NCCI worksheet. For a contractor with $3 million in payroll, one claim in the $40,000 to $50,000 range can push the experience modification rate (EMR, also called "the mod") 8 to 15 points. At a 1.12 instead of 1.00, you're paying 12% more on every dollar of WC premium for three full years.

One sub. One certificate that checks every box. Three years of elevated cost.

How Big the Exposure Is Across the Southeast

This isn't a fringe issue. The Century Foundation (TCF) estimated that up to 2.1 million U.S. construction workers are misclassified or paid off the books (TCF, 2023). Researchers found a 32% misclassification rate across six Southern cities. Not all of those workers are hiding behind ghost policies; some have no coverage at all. But the ghost policy is the mechanism that lets a sub walk onto your job site with paperwork that looks right.

Tennessee's SB 1579 took direct aim at the transparency gap. Introduced in January 2026 by Sen. Page Walley, the bill would have required any construction service provider holding a zero-exposure policy to notify every contracting entity in writing and provide a copy of the policy. Contracting entities would retain those records for three years. Insurers would collect signed attestations confirming the applicant has no employees and acknowledging that failing to report a change in employment status within 60 days could result in criminal charges (TN SB 1579, 114th General Assembly).

The bill is in summer study. Its provisions aren't law yet. But the disclosure mechanism it proposes highlights what doesn't exist in most NCCI states: any requirement that a zero-exposure policy holder tell you their coverage is symbolic.

Why the Certificate Alone Doesn't Protect Your Mod

Certificates of insurance don't disclose estimated exposure, payroll basis, or employee count. A COI for a zero-exposure policy looks identical to one covering 15 workers at $800,000 in payroll. The carrier name, policy number, and coverage limits are all there. What's missing is any indication that the policy was written to cover zero work.

NCCI's Classification Inspection Program regularly finds that roughly one in three audited construction policies carries a classification or payroll discrepancy (NCCI, 2024). Ghost policies sit at the extreme end of that spectrum: not a misclassified employee or an understated payroll, but an entire workforce the policy was never intended to cover. When the claim hits, it hits the GC's experience rating.

In our reviews of Southeast contractor worksheets, we've seen a single subcontractor claim from a job two years prior still driving the mod above 1.10. The contractor didn't know the sub's policy was a ghost. The certificate had been on file the entire time.

What an Audit Would Check

An audit reviews claims on the GC's worksheet that originated with subcontractor injuries, checking whether those claims belong on the GC's experience period and whether the reserve values reflect the actual exposure. If a claim landed on your policy because a sub carried zero-exposure coverage, the classification and valuation of that claim still determine its mod impact. An audit checks whether that data is accurate before the next mod calculation locks.

If you manage subcontractors across Southeast job sites, send us your NCCI worksheet and we'll review it at no cost.