Many directors serving on the boards of co-op corporations and condominium communities assume that once they have secured the appropriate coverage for their properties, their problems are largely over. Unfortunately, problems in the insurance marketplace have created conditions which can leave unknowing boards exposed to losses from areas they least expect. One of the principal indirect exposures that all boards face relates to the contractors they engage to do everything from simple building repairs to large capital projects. These contractors may be plumbers, electricians, roofers, painters, HVAC service technicians and the like and may be performing a range of tasks on the property. Understanding what is necessary to prevent potential risks associated with these contractors is essential for every co-op and condominium board.
State Laws Impact Insurance Coverage
On larger projects, most boards have their corporate counsel prepare a written contract with specific insurance requirements including hold harmless agreements, stipulations to name the board as an additional insured, and setting out the coverages and amounts needed to work on the property. These insurance requirements are evidenced by a certificate of insurance, which enumerates the insurance company or companies in question providing the contractors’ coverage, as well as the types of policies carried (i.e., Workers Compensation, General Liability, Automobile, etc.). The certificate of insurance will also confirm that the board has been included on these policies as an additional insured as required by the contract covering the work to be done.
At one time, these measures were sufficient; however, that is no longer the case. State laws relating to construction, requirements pertaining to providing a safe place to work, and falls from heights now impose statutory liability on property owners who hire contractors to perform construction work on their property. The normal defenses that would be available to a property owner do not apply in cases involving injuries arising from construction operations and therefore, these cases are far more difficult to successfully defend. Due to this exposure, many insurance carriers decided to no longer write coverage for contractors. Those carriers that did remain in the market significantly increased their premiums. More recently, there have been some new insurance companies beginning to write coverage for contractors; however, their policies contain specific exclusions pertaining to the job-related injuries that are the cause of many claims. Contractors, particularly the smaller ones, looking to reduce their costs, purchase policies with these coverage restrictions. This is where the problems begin for co-op and condominium boards that hire these contractors to work on their properties.
Introduce Increased Risks
While it is difficult to determine whether a contractor is aware of the limitations in their policies, the impact of certain coverage restrictions and exclusions will be felt by co-ops and condominiums as liability will be imposed on them by state labor law statutes. The board’s expectation is that, since they have a certificate of insurance naming them as an additional insured on the contractor’s policy, they will have defense and indemnification coverage under the contractor’s policy. However, if the contractor’s policy contains exclusions such as: “Injuries to Employees and Employees of Independent Contractors,” there is no coverage. The corporation or association board’s insurance now has to respond. This type of unwanted claim could drive up the corporation’s premiums or make it difficult to obtain coverage in the future.
Managing the Risks
To avoid these new exposures, boards should establish new risk management policies. In addition to requiring contractors to provide a certificate of insurance and written contract, they should: