Minnesota Targets “Ghost Policies” in Construction: What Contractors Need to Know
Minnesota’s construction industry has a growing problem - and state lawmakers are taking notice.
A new law, effective January 1, 2026, aims to crack down on fraudulent or misleading workers’ compensation insurance policies, often called “ghost policies.”
These changes are designed to make sure businesses aren’t skirting the system by claiming they have no employees - when in reality, they’re relying on subcontractors or misclassified workers who should be covered under a valid workers’ compensation policy.
What Is a “Ghost Policy”?
A ghost policy is a workers’ compensation insurance policy issued to a business that claims zero employees and zero payroll exposure.
These policies are typically used by sole proprietors or independent contractors - but in some cases, companies use them to avoid paying full insurance premiums while still appearing compliant to general contractors or clients.
In other words, a ghost policy can make it look like a business has valid coverage when, functionally, it doesn’t protect anyone.
New 2025 Law: Minnesota Cracks Down
Under the new law, starting January 1, 2026:
- Any business applying for a zero-estimated exposure policy must sign a sworn statement affirming that they have no employees and no workers’ comp exposure.
- They must use specific state-approved language in that attestation.
- They must provide a copy of the policy and written notice to every business they contract with.
- Those businesses must keep the records for three years.
This change directly targets insurance premium fraud - and it holds both the insured business and the contractors who hire them accountable for proper documentation.
Why It Matters
For general contractors and developers, hiring a sub with a “ghost policy” might seem harmless, but it’s risky.
If that subcontractor has workers who get injured on the job, your company could:
- Be held liable for unpaid workers’ compensation coverage,
- Face fines and penalties, and
- Suffer increased premiums or even insurance cancellation.
The state is making it clear: if you’re working with a sub who presents a ghost policy, you’re expected to verify it and keep that proof.
The Connection to Worker Misclassification
Ghost policies often go hand-in-hand with worker misclassification - when a business treats employees as independent contractors to avoid paying payroll taxes and insurance.
Minnesota’s 14-point Independent Contractor Checklist helps determine whether a worker truly qualifies as an independent business.
If your subs don’t meet that checklist, and they’re covered by a ghost policy, your company may still be on the hook for coverage.
(You can view the full checklist at the Minnesota Department of Labor and Industry’s website.)
What Contractors Should Do Now
To stay compliant:
- Request copies of every subcontractor’s workers’ comp policy - and read the fine print.
- Confirm whether it’s a zero-exposure or ghost policy.
- Keep documentation for at least three years, as required by the new law.
- Revisit your subcontractor agreements to ensure they include updated insurance requirements and attestations.
- Audit your relationships using the DLI’s 14-point checklist to avoid misclassification exposure.
How North Star Law Group Can Help
At North Star Law Group, we help construction businesses stay ahead of new compliance requirements - from verifying subcontractor insurance coverage to preventing worker misclassification and fraud liability.
We can:
- Review your current contracts and subcontractor files,
- Identify exposure under the new ghost policy law, and
- Help you document compliance before enforcement begins in 2026.
Don’t Let a “Ghost Policy” Haunt Your Business
Fraudulent insurance coverage can leave legitimate contractors holding the bag. The best defense is proactive compliance and documentation.
North Star Law Group can help you get there - before the state comes calling. Contact us today.
