Workmen's Comp: Slip Sliding Away

If you don’t think devastating accidents can happen on even the smallest or simplest apartment renovation projects, just talk to the board at 3 Hanover Square. A shareholder in the 205-unit financial district co-op was having his floors redone, when refinishing chemicals ignited. The ensuing fire completely destroyed five apartments on the 15th floor, with smoke and water leaving a trail of damage all the way down to the lobby. No one was hurt in the accident, but there was a $3 million repair bill.

“At that time, we were somewhat loose on the insurance [requirements],” recalls board president Gerald Belpaire. “We had an insurance certificate from the contractor, but his insurance company wasn’t really solid. Our carrier saw no possibility of getting something back and therefore was much more difficult in reaching a settlement with us. Eventually, we got 90 percent of the money we needed.

Belpaire says things have been tightened up at his co-op since the accident. Every renovation or alteration that a shareholder wants to do needs to be filed with the managing agent and the board. Contractors must provide original, signed insurance certificates, not faxes or photocopies. And the board, the property manager, and the building staff must all keep tabs on the actual work that’s going on, to make sure that everything is authorized. “You need to remind people that these are serious matters that affect the safety of everybody,” he says. “In the end, it affects property values if shareholders don’t do things that are up to code. It’s in their best interest to comply, but you need to be vigilant.”

New York laws place absolute liability on landlords in case of an accident. Therefore, shareholders and boards need to be absolutely sure that the contractors have the proper insurance coverage. “People who hire contractors in buildings are always looking for the best price,” says Robert Mackoul, president of Mackoul & Associates, an insurance company. “And a contractor who has to provide coverage for liability, workers’ compensation, [and] his automobiles, is going to have a higher cost to provide the same service than a contractor who’s uninsured.”

Any shareholder hiring a contractor to do work in his or her apartment must make sure that several things happen before any work can take place. The shareholder must complete an alteration or decorating agreement (depending on the work being done) and have it signed by the board. The contractor must provide a certificate of comprehensive personal liability and property damage insurance policies from its insurance carriers, generally in the amount of $1 million, that name the shareholder, the co-op or condo, and the managing agents as additional insured.

The contractor and any subcontractors also need to show they have workmen’s compensation insurance coverage for their employees. The contractor should sign a “hold harmless” agreement that states he has read the terms of the agreement and agrees to indemnify the shareholder and co-op.

Proper protection starts with choosing the right contractor. When distributing alteration or decorating agreements to your shareholders, inform them that any contractor doing work in their apartments must be licensed by the New York City Department of Consumer Affairs (DCA) as a home improvement contractor. They can check for a license at the DCA’s website: www.nyc.gov/html/dca/home.html.

While hiring a licensed contractor is no guarantee of quality work, the DCA does pay consumers who get cheated by unscrupulous licensed contractors through a trust set up by the DCA. The board can put together an informal list of contractors who have done reputable work based on the recommendations of the shareholders, but should make it clear that this list in no way endorses anyone.

If the contractor has the proper insurance coverage, he should be able to provide the shareholder with the correct certificates. Get phone numbers for the contractors’ insurance carriers, and make sure that somebody verifies that the contractor truly has an active policy. Run these certificates by the manager; he should be able to recognize a questionable carrier or if there’s something missing in the certificate. The certificates should list the shareholder, the managing agent, and the cooperative entity.

The contractor must also have proof of workers’ compensation insurance for his employees, and of any subcontractors hired especially for the project. Workers in any for-profit company must be covered by their employer’s workers’ compensation coverage and should be able to provide a certificate of this coverage. Sole proprietors and businesses with no employees, however, are not required to have workers’ comp. If a shareholder is hiring an independent contractor, that contractor does not need to show that he is covered by workers’ comp, but he still needs to have the liability insurance.

Why should boards be concerned about the work shareholders are doing in their apartments? It’s a matter of protection, says Don Levy, vice president and account executive at Brown Harris Stevens, especially for those shareholders or unit-owners who aren’t carrying any homeowner’s insurance. Making sure that the contractor’s insurance is legit before work begins is the best way reduce a co-op’s exposure. “If there’s a problem, and even if the shareholder carries insurance, somebody who’s injured or damaged is going to look to the party who’s likeliest to come up with some sort of compensation, which invariably is the housing entity,” Levy says. “There might be a claim asserted against all parties, but if the housing entity’s insurance company can determine that the claim is the responsibility of the contractor and the contractor has proper insurance in place, you’ve got a much better chance of either having the claim dismissed against the housing entity or at least avoiding liability.”

It may seem to some shareholders like a lot of extra paperwork to do and phone calls to be made, but take the position that any work being done in an apartment is a potential risk to the co-op, so the building must have everything in order. Concludes Bruce Cholst, a partner with the law firm Rosen & Livingston: “The message should be, don’t take even minor alterations lightly.”