All professional contractors and service providers are required by law to carry insurance to cover their activities. Any condo building should also carry its own insurance to cover accidents or other incidents on the property—this could include anything from slip-and-falls to staff injuries to damage from doing electrical work.
The latter is important to help minimize risk. Lawyers advise that you can’t always control your vendors’ and contractors’ safety habits, and negligence claims can easily end up in court and out of your hands, so it pays to make sure you don’t expose your condo to serious liability and expense.
Are You Covered?
According to Celeste Vezina, treasurer of Maloney Properties in Wellesley, Massachusetts, all contractors must carry general liability insurance. Workers’ compensation coverage is also necessary if they have employees.
“If someone is a sole proprietor, someone who is really that one person who owns the company and the only person who owns that company—sort of a rare event these days—that person does not need to have workers’' comp, so they can sort of stand on their own because they are not going to sue themselves. But for 99 percent of the companies [out there] that have more than one person, that would require workers’ compensation insurance,” Vezina says.
The same holds true for specialty contractors like tree or window workers; they still need to obtain all the above insurance, whether they are working at a condo or an HOA.
Checking for a license is also recommended, as an unlicensed contractor is usually uninsured as well. If a condo uses an unlicensed contractor and property damage occurs, the individual may have no way of reimbursing the association for damages caused. Furthermore, if a third party suffers an injury at the property, there may be no insurance coverage.
Deciding on the right amount of insurance can be tricky. An insurance agent is going to want you to purchase a great deal, but you don’t want so much that the owners are going to object to the costs being too high. Boards can know if their building is adequately covered in case a contractor or subcontractor is injured or property is damaged on the job by understanding what services are being provided by the hired worker and the cost of those services, says Jim Higgins, ARM, CIC, LIA, senior vice president of Rogers & Gray Insurance, a firm with eight locations throughout Massachusetts. “If an association hires a contractor for a $15,000 job and his commercial general liability (CGL) is $1 million, that would be deemed adequate. However, if an association hires a roofing contractor for a 10-roof job that costs $750,000 and his CGL is only $500,000, then the association should demand that he increase his limit.” The amount of necessary coverage also depends on the job. As the safety risk increases, so should the coverage amount, experts say.
How Much is Too Much?
“If someone’s doing work such as window washing or high tree work, the general liability of $1 million might not be enough,” Vezina says. “You want to make sure there is excess limit or umbrella insurance. Depending on the nature of the work, you might ask for $1 million for the janitorial company, but you might ask for $10 million for someone doing exterior repair on a high-rise or putting on a new chiller on the roof of this high-rise. Typically, what we see are at least $1 million, up to $10 million in excess liability,” she says.
Additionally, all associations should have their own workers’ compensation insurance so if a contractor’s insurance policy doesn’t have the proper coverage, the association’s own policy can fill in the gaps, Vezina says.
Anyone working on a property is considered a for-hire worker and therefore the remedy for injury is covered by workers’ compensation insurance. Any contractor who subcontracts any work being done in a condo must obtain proof of workers’ compensation coverage or a Certificate of Election to be exempt from all subcontractors, prior to work being done. If the subcontractor is not covered or exempt, for purposes of workers’ compensation coverage, the subcontractor’s employees shall become the employees of the contractor. That means the contractor will be responsible to pay any benefits to the subcontractor and its employees.
Case in Point
So what happens if a contractor is injured on the job and is not properly covered by their employer? The hiring party, in this case, the association, could assume vicarious responsibility, experts warn. “The association could be held liable if they involve themselves in the supervision, direction or control of the work that was contracted,” Higgins says. “That relationship may actually be interpreted as an employer and employee relationship. Many condo associations maintain a minimum premium workers’ comp policy to specifically address this situation. A condo association should always ask for additional insured status on the contractor’s general liability policy,” he says.
Joel Davis, Illinois-based sales and marketing manager for Community Association Underwriters, warns about the repercussions of hiring uncovered contractors, and the literal price associations might have to pay.
“An association in the north shore suburb of Chicago hired a painting contractor to work on their premises to paint the exterior window frames, but the contractor never provided a certificate of insurance as they said they would. So,” he continues, “they end up working on the premises and a painter falls off the ladder from the third story and breaks his back. He tries to file a claim with his painting company and they say, ‘Sorry, guy. We let our policy lapse. There’s no coverage for us.’ So that injured painter has a $600,000 broken back claim so he then turns around and files a claim against the condominium association. Well, they didn’t have one of these 'If Any’ worker’s comp policies—this $600,000 had to be paid out of their general liability coverage. That’s bad because that’s a big claim against them on their loss history, and when they go to secure other insurance quotes, they have to show this big claim that they really had nothing to do with other than that they hired a contractor.”
Sometimes a piece of paper isn’t enough. A good rule of thumb is before hiring a contractor, a manager should always ask to see the contractor’s or subcontractor’s certificate of insurance, and also call the agent listed on the policy to ensure that it’s still valid. It’s not enough for the certificate of liability to be valid—the language must be correct also.
“Another important issue on general liability and umbrella insurance is to make sure on the certificate itself you have language that says additionally insured are 'XYZ condominium trust' and the management company,” Vezina says. “I can’t tell you how many times we’ve returned certificates to get that language. That means that not only you know the contractor has liability insurance, but because of the language, they’ve agreed if any accidents are caused through their negligence, that they will take the claim for you. Without that language, all you know is that they have general liability insurance.” Vezina also urges property managers to be staunch about keeping track of companies’ and contractors’ proof of insurance. “Like with any other job, it’s important to stay on top of the paperwork and a lot of times it’s frustrating to send insurance certificates back to brokers because of the language, but it’s very important that property managers insist on getting it correct — because in the long run, when the claim comes in and you have the right language, you’ll be in good shape,” Vezina says. “One of the important things for the property manager to do is to keep track of all of these dates, either in an Excel file or by hand to make sure that you get these certificates renewed every year,” Vezina recommends.
While the work can be cumbersome, she stresses it’s the only way to ensure an association is completely exempt from responsibility; the welfare of your association depends upon it.
Beware of Fraudulent Contractors
Most lawyers and insurance agents have dealt with a contractor who was not really insured either because of a mistake or more likely, because they were trying to get away with something.
This would be one of the rare circumstances when a condo building is held liable for injuries or damages suffered by a contractor’s employee on the building’s property. There are also serious repercussions for coverage misrepresentation.
“Employers operating without insurance are subject to civil fines and/or criminal penalties, including imprisonment, and are subject to a stop work order issued to their business,” says Glenn Montgomery, vice president at Brownstone Insurance in Norwell, Massachusetts.
In the tough economic environment we currently live in, there are many contractors who make promises of quick and inexpensive repairs, but this shouldn’t stop a board from carefully choosing a contractor to make sure the contractor is properly licensed and insured. n
Keith Loria is a freelance writer and a frequent contributor to New England Condominium. Editorial Assistant Enjolie Esteve contributed to this article. .