May, 1993

FOR CONTRACTORS' INJURED EMPLOYEES

Condominium associations may be required to obtain workers' compensation insurance to avoid liability for injuries to contractors' employees. Because unit owners technically own their condominiums' common elements, condominium associations act as a contractor on the owners' behalf when common elements must be maintained. As such, condominium associations contract with subcontractors (companies or independant contractors) which provide services and materials. Occasionally, through an association's negligence or otherwise, a subcontractor's employee is injured. [Note, in the workers' compensation context, a "contractor" is not a licensed builder as the term is commonly used. Instead, a "contractor" is a person or entity contracting for work.]

Pursuant to the Workers' Compensation Law a contractor is generally immune from suits by subcontractor's employees injured while performing the contracted work. To further reduce their liability as a contractor, most associations include in service and materials contracts language absolving associations from liability for claims that otherwise would be covered by the subcontractors' worker's compensation insurance. This type of contract provision is intended to allow an association to avoid purchasing workers' compensation insurance.

Recently Florida's Fourth District Court of Appeal determined that a condominium association was liable for a management company's employee's injuries despite a contractual waiver of liability. Woods v. Carpet Restorations, Inc. 18 FLW D131. The Court interpreted the Workers' Compensation Law to apply only when a contractor has a contractual, not a statutory, obligation to another. Taking this interpretation one step further, the Court held that a condominium association has a statutory duty to maintain common areas pursuant to the Condominium Act to provide maintenance. Because a condominium association's duty to maintain initially arises from a statute rather than a contract, the Court held that a condominium association cannot exempt itself from liability to a subcontractor's employee.

This decision may be the subject of further appeals. The court did not note that a condominium association's duties may also arise from a declaration of condominium, a type of contract. Legislative action to amend the Worker's Compensation Law may be required. In the interim condominium associations are urged to consult with their insurance agents to confirm that their coverage is appropriate.

PATIENTS ARE FREE TO CHOOSE

A Health Maintenance Organization (HMO) cannot penalize a doctor who leaves the HMO and who continues to provide medical services to the HMO's former patients. Medical Plan Inc. v. Jacobson M.D., 18 FLW D121 (Fla. 3rd DCA 1992). Dr. Jacobson contracted with the Humana HMO to provide services to the HMO's patients. The contract also provided that if Dr. Jacobson left the HMO and his patients left the HMO to be his patients, then the doctor would have to pay the HMO for each member of the HMO who is subsequently treated by the doctor.

The Court determined that the contract requiring the payment of money if a patient left the HMO to be treated by Dr. Jacobson was unenforceable. The basis for the decision was that the contract obstructed the doctor-patient relationship and violated public policy. It is uncertain if this holding would apply to doctors in a private, non-HMO, practice.

IRS KNOCKING ON ASSOCIATION DOORS, REVIEWING ASSOCIATION PAPERS

It is reported that the United States Internal Revenue Service is scrutinizing certain associations who have won construction defect litigation awards. The targeted associations appear to have opted to use Form 1120 rather than 1120-H for tax filings. Currently filers of Form 1120 pay taxes pursuant to a graduated tax schedule starting at 15%, filers of Form 1120-H pay a flat 30% on all their income, except for membership assessments set aside for reserves. The IRS is conducting audits of these associations and assessing back taxes for common area maintenance reserve funds.

The IRS enforcement action appears to be a policy change. The IRS has not previously considered reserve funds as being taxable. However, the IRS is now taking the position that its present policy implements long-established rules pertaining filers of Form 1120 as opposed to Form 1120-H. It is noted that the IRS may have created this situation by encouraging taxpayers to use Form 1120 instead of Form 1120-H, stating that Form 1120 may result in a lower tax bill.

PLEASE WELCOME LAURIE G. COHEN

Mary Arpe and Michael Gelfand are please to announce that Laurie G. Cohen has joined Gelfand & Arpe, P.A. a new associate with the firm. Ms. Cohen graduated from the University of Miami School of Law and she is currently pursuing an L.L.M in Taxation. She is member of the Florida Bar Association and the American Bar Association. She also is involved in community activities, such as the American Cancer Society.

This information is provided only for public information purposes and is provided without obligation or fee. It is distributed to the firm's association clients to provide a general notice of recent changes in the law. This information is not to be considered as legal advice. The changes in the law may not have been reviewed by Florida or other appellate courts and may be subject to challenge. Before taking any action you are urged to consult with counsel to ensure that your legal rights are being protected.

© 1993 by Gelfand & Arpe, P.A.