The Balancing Act of Insurance with Contractors

Too many Associations unwittingly put themselves at risk when hiring contractors for maintenance projects around the Association caused by a misunderstanding of how insurance should work to protect the insured.

Most times a contractor does a good if not a great job on or near budget, and there are neither damages, such as punching a hole in a roof, or accidents, such as cutting a hand with a saw or falling off a roof. However, accidents happen, and the whole nature of insurance is to prevent against the catastrophic loss. If, for example, an owner gets hit by flying ice chipped from a roof and suffers a severe injury, there is no doubt the contractor and the association are going to get sued.

So what happens if the contractor does not have proper insurance? The association is on the hook for the damages. You will likely be covered, but the association will have to pay its deductible, anywhere from $1,000.00 up to $10,000.00 or more, putting a dent in the budget, a hole in the Reserves, and likely causing the association's premium to rise.

So, every association should ask their contractors, even their favored, regular ones, for a certificate of insurance. Make sure they have adequate workers compensation (check with your agent as to what New Hampshire requires as it can change from year to year), and at least a one million dollar general liability policy. This amount is the minimum, and the size, scope and cost of the project can easily require an assessment as to whether this should be higher.

If, for instance, there is a high risk project, such as brick refacing several floors up or replacing windows in a high rise along the windy beach, then it is likely the million dollar lability policy should be higher. In those cases the association should require an umbrella policy that provides supplemental coverage.

And never hire someone from the association to do work at the association. Unless you get a workers compensation policy. Why? Because the association has just transformed itself from a Board managing contractors into a direct employer. If that employee get hurt and sues the association, and there is no workers compensation policy, any damages will come out of the pocket of the Owners.

With regard to the contractors an association does use, the Board of Directors should look with care to the coverage amounts. For instance, landscapers with riding mowers should have supplemental insurance or a higher general liability policy. Blades are sharp, and human appendages don't stop blades very well.

In every case, the association should be named as an additional insured. After all, it is not association personnel who are doing the work, but the contractor. This step ensures that the contractor's insurance carrier will provide the first line of representation for any claim.

Another step to prevent future problems is to read carefully. Sometimes the requested insurance certificate merely says the association is the holder of the certificate. This fact is not enough. It needs to say the association is an additional insured. Holding the certificate does nothing but open the association to liability. So read carefully.And if the contractor puts up resistance to providing the requested insurance, that's your one and only warning needed to stop the work from being done.

Remember, as much as you like your preferred contractor, there is likely no real way to neither to know the financial stability of the company, nor should an association ever forget their fiduciary duty is to the association not the contractor. Make sure every contractor has good insurance, that it is paid through the time period you will be using each contractor, and make really sure the association is named as an additional insured.

Penultimately, always check with your insurance agent for the latest and most reliable coverages and insurance regulations as they change.

Finally, this column was not brought to you by the insurance industry; just a concerned condo attorney. And concerned attorney is not an oxymoron.