Tens of thousands of North Carolina businesses are putting their employees at risk by failing to buy workers’ compensation insurance, a violation of the law that’s driving some injured workers to destitution and businesses into bankruptcy.

Though the state has the power to crack down on these businesses, it doesn’t act until a worker is hurt and left without a paycheck and with mounting medical bills. The state Industrial Commission rarely enforces penalties, and efforts to collect money for health care can drag on for years.

The Industrial Commission, charged with overseeing workers’ compensation claims and enforcing that employers keep coverage, has never tried to figure out which businesses are shirking their responsibility.

A News & Observer analysis of the N.C. Rate Bureau’s database of policies written for companies required to have workers’ compensation found that the problem is widespread. Insurance carriers writing policies in North Carolina reported that they covered 140,472 businesses. Another 117 large companies are certified as self-insured.

The N.C. Department of Commerce says as many as 170,000 companies with four or more employees operate in the state. Dun & Bradstreet, a reputable business tracking organization, counts about 172,000 businesses headquartered in North Carolina with at least three employees; that doesn’t count the branches of businesses in the state that are headquartered elsewhere.

Businesses with three or more employees are required to buy insurance or certify with the state that they can cover the costs of employees’ injuries.

Since the 1930s, state law has put the burden of any workplace injuries on employers and the insurance they purchase. To make sure injured workers get the care they need quickly, the state has established laws to specify exactly how much is owed for degrees of disability and missed wages.

By law, employers are required to certify with the Industrial Commission that they have insurance, but the commission doesn’t ask for that information. Instead, it contracts with the Rate Bureau to provide a database of businesses that have purchased insurance.

The commission makes no effort to figure out which employers don’t have protection. It only learns of noncompliant companies when a worker has been hurt and appeals for help.

No easy fix?

From July 2010 to July 2011, 378 cases involving employers without workers’ compensation had to be scheduled for a hearing by a judge at the Industrial Commission, which means that attempts to settle the claim failed.

Many of the employees worked in dangerous jobs, such as construction or roofing. Some of the companies were small and struggling; others acknowledged they needed the insurance but decided against it to cut costs.

Many of the workers suffered debilitating injuries that will forever keep them from the manual labor on which they built their livelihood. Sometimes, the claim is simple: a teenager working at a sandwich shop that needed her finger stitched after an accident with a meat slicer.

Last session, the state legislature, in a sweeping bipartisan effort, rewrote portions of the workers’ compensation law. Lawmakers trimmed amounts and length of payments due to workers to help drive down the cost of workers’ compensation insurance. The changes did not address employers who don’t buy insurance.

Speaker Pro Tem Dale Folwell, a Winston-Salem Republican who helped push the bill, said he was startled by the apparent number of uninsured employers and said it must be addressed.

“This highlights that there’s a lot of work to do,” said Folwell, who noted that the businesses that don’t buy insurance have a competitive advantage over those who do. “Our challenge is to make the cheating less rewarding.”

Mike Carpenter, executive vice president of the N.C. Homebuilders Association, said his group has worked for years to try to clamp down on those in the construction industry without workers’ compensation. Homebuilders pushed successfully for a law in 1992 that requires builders to show proof of insurance to get a building permit.

“It’s been a problem for a long time, and if there were an easy fix, I have to believe it would have been fixed a long time ago,” Carpenter said.

The head of the Industrial Commission’s fraud unit, charged with investigating cases of uninsured employers, said the unit focuses on collecting money for injured workers instead of punishing employers.

“What I’d say is we make a good-faith effort given the resources we have,” said Sam Constance, chief investigator for the unit.

Industrial Commission Chairwoman Pam Young, appointed by former Gov. Mike Easley to head the commission in 2007, declined requests to be interviewed.

Unable to work

Danny Allred made his living roofing, mulching and hauling loads of debris since he dropped out of high school. Now, at age 59, Allred’s back is so warped he cannot bend over to tie his shoes.

Allred’s doctors and a deputy commissioner at the Industrial Commission have declared him permanently unable to work since he was crushed by a load of gravel during a work-related crash in 2006.

Earlier that year, Allred said a member of his Hillsborough church, Ted Wright, offered him a job with his landscaping crew. Allred put Wright’s business card in his wallet and said a prayer of thanks for his luck finding a job. On the card, right under T&J Services, are the words “fully insured.”

Wright and his business partner John Summey, however, had canceled their workers’ compensation policy months before Allred started. The company did not offer health insurance.

“It was bad timing,” Summey said in an interview. “We both knew we needed insurance ... but we were scraping it together to make ends meet.”

Deputy Commissioner James Gillen ruled in 2011 that the company owners owe Allred $211 a week in wages from the time of the accident until he can work again. So far, that amounts to $61,711. They also owe $40,000 to UNC Hospitals for Allred’s care after the accident. Wright and Summey, who initially tried to settle the claim, appealed the decision to the full commission and await an opinion.

Wright, through his attorney, declined to comment.

For Allred, each day is a struggle. He perches on the edge of his recliner, the only way he can sit without suffering back spasms. Medicaid pays for the muscle relaxers he needs to be limber enough to change his clothes each morning.

He eats with the help of food stamps, and Orange County Social Services helps pay his electric and water bill most months.

About once a week, Allred said he sees a group of workers for Wright pass his trailer on their way to mow a yard. Sometimes, Allred said, they honk and wave.

Enforcement is lax

The Industrial Commission had the power to try to put Summey and Wright behind bars. Knowingly failing to carry workers’ comp insurance is a Class H felony.

The commission’s six-person fraud team opened a case against the men, as it did with hundreds that year. After presenting the case to a local prosecutor, the fraud team closed the case without charges.

Jim Woodall, district attorney in Orange County, said his assistant believed the owners accidentally let the policy lapse and were seeking another. The business owners had testified before the commission that they canceled the policy because they couldn’t afford it.

Since January 2011, three uninsured employers have been arrested. About 200 of the criminal investigations were closed in this time, while 95 were cleared because the employer paid the injured worker or bought insurance.

Employers without workers’ compensation can be fined $100 for each day they are without coverage and can also be ordered to pay in fines the same amount they owe the employee and medical providers.

But the commission collects little. Of the 225 uninsured employer cases the fraud unit pursued since January 2011, it collected $30,500, amounting to an average of $135 per case. The commission can, and most often does, waive the penalty if the employer settles with the injured worker.

Tracy Curtner, an assistant attorney general assigned to the fraud unit from 2006 to 2011, said the commission was loath to pursue collection of payments and fines.

“There are drawers full of uncollected judgments going back for years,” said Curtner, now in private practice.

Uninsured employers have been a problem at least since 1997, said state Sen. Doug Berger, a Democrat from Youngsville and a former deputy commissioner.

The commission has worked some over the years to try to address the problem, Berger said. But he said it has done nothing to ensure that employers carry insurance before an accident happens.

Berger said that he routinely used his power as a deputy commissioner to hold an employer in contempt of court until it paid. Sometimes that meant the threat of jail.

Buck Lattimore, chairman of the commission from 2000 to 2007, said the commission backed away from using contempt as a tool to order businesses to pay up after he stepped down as chairman.

“I thought we should use every tool we had to get payment,” he said. “But, some (commissioners) thought we were overstepping our bounds.”

Contempt statistics over the years are unavailable, but the fraud unit did collect more civil penalties against uninsured companies in many of the years in Lattimore’s tenure, records show. The commission rarely uses its authority to enforce payment now, plaintiffs’ lawyers say.

Lattimore said compelling businesses to buy insurance is tough.

“How do you even find these people?” Lattimore asked. “The people who skip out on insurance aren’t the people who are in plain sight. They don’t buy business licenses or pay their taxes.”

Failing to check

When Summey and Wright, owners of the landscaping company where Allred worked in 2006, canceled their workers’ compensation insurance on Sept. 7, 2005, they mailed a letter to Liberty Mutual Insurance.

Liberty Mutual was then obliged to alert the N.C. Rate Bureau. The Rate Bureau then provided the information to the Industrial Commission, as it does with every new policy written, renewal or cancellation of a workers’ comp policy.

While the commission uses the database to find the proper insurer when a claim is filed, no one at the Industrial Commission monitors the cancellations, even when it’s a company it has previously threatened with fines and discipline to purchase insurance.

“I’m sure we could do a query in our system to come up with a list of all policies that have been canceled,” said Sue Taylor, director of insurance operations for the bureau. “We’ve not been asked to do that.”

Lawyers who represent uninsured employees wish the state would do more to send a message to employers.

“The commission doesn’t seem to want to enforce its orders and use the power it has,” said Bob Bollinger, a Charlotte lawyer who represents several injured workers who have not been paid despite orders by the commission.

Some states have done more to help workers insured while working for uninsured employers. In South Carolina, insurance companies pay into a fund used to cover costs for such cases. In New York, state officials in 2008 raided construction sites and stopped work by companies without insurance.

In North Carolina, these workers are often on their own to collect payments from their old bosses. The order from the Industrial Commission is simply a sheet of paper.

To get money, unless it’s handed over voluntarily, the worker must get a judgment issued in state court or persuade the Industrial Commission to hold the company in contempt and demand payment. Collecting is often a futile effort, attorneys say.

Summey, the landscaping company owner, said he has nothing to offer Allred, even if he loses on appeal and is ordered to pay. Summey, who parted ways with Wright soon after Allred’s accident, said he’ll likely end up bankrupt.

Summey said that he has taken a minimum wage job with the city of Durham and that nothing he owns is worth much.

“It’s not a happy situation at my house, either,” Summey said. “I just hope we can put this behind us.”

Locke: 919-829-8927