Better Safe Than Liable

Finding a contractor to work on your building has suddenly become more challenging due to the insurance market and New York’s Scaffold Law. You recently ran into this at a building you manage. 

Correct. A very prominent Upper West Side co-op building had entered into a contract with a large window manufacturer and installer, and a window fell on an employee while he was receiving it from a co-worker. While employees can collect under workers’ compensation, they also can sue a third party that could be held liable for their injuries as well. In this particular case, it was the co-op and Solstice as the managing agent that got sued. After a tumultuous litigation, there was finally a settlement acceptable to all sides — the plaintiff, the defendant, our client and the insurance carrier who had picked up the defense costs. But it brought up a number of issues with how we have to deal with contractors, particularly with the transfer-of-risk process, indemnifications and hold-harmless agreements, and whether the traditional way of obtaining certificates of insurance is adequate enough. We’ve learned that it isn’t. 

So the worker was injured and informed his company, which said to file a claim under workers’ comp. How did this employee end up with a personal injury lawyer? 

Well, it’s a niche that personal injury attorneys are finding to be relatively lucrative. We’re seeing more advertisements, including on social media, that target injured workers under Labor Law 240. They’re asking people to call for a free consultation. And to the extent that the attorney believes an injury qualifies, they are encouraging workers to file a third-party claim in addition to the workers’ compensation that they’re receiving through their employers. 

So how has business changed, given that co-ops and management companies, who do the hiring, seem pretty vulnerable if a worker is injured?

It’s changed in a number of ways. One, the traditional practice of asking for a certificate of insurance is no longer adequate. It doesn’t speak to the contractor’s actual policy provisions or any exclusions that might exist. We’re now having the contractor produce the actual policy and then having our client’s insurance broker review it. The broker is looking for very specific items, particularly coverage for contractual liability, to make sure there are no exclusions for that. Then they essentially give us the go-ahead for a particular contractor. 

By the way, we’re not the only ones recommending this review process. There are major insurance carriers in New York City, whether it’s Admiral, Greater New York or Fireman’s Fund, who are actually requiring the receipt of those insurance policies so that they can review them directly and give us the go-ahead. And if there’s a case where we don’t have the policies reviewed and there are exclusions or inadequate coverage, they have suggested that they may not be interested in renewing a building’s insurance policy. 

What about when it’s a shareholder or unit-owner who is hiring the contractor?

In those cases it’s important for us to go through that same process. We review contractors, the shareholder’s or the unit-owner’s alteration agreements, insurance and the indemnifications that are required. That results in some delays and, unfortunately, costs. And there’s a complex conversation that’s going to happen with each of our individual boards, because they will have some business judgment decisions to make. 

One of the recommendations that we’re making is that the co-op or condominium enter into master service agreements with certain contractors whose insurance is on file and has been reviewed. The hope is that we will have a handful of qualified contractors that have been vetted and are available for shareholders and unit-owners to use in their own private work. Unfortunately, a lot of the midsized contractors, painters and handyman-type contractors that are working in the city do not have the requisite insurance. 

When the building hires workers, or even directs staff to do specific work, what are the insurance risks?

My understanding is that if it is a staff member, they will be covered under workers’ compensation, including for private work, whether on- or off-duty hours. But I’m also told that the very same staff member could sue under this statute in the event of an injury. We have a staff member in a condominium we manage who, unbeknownst to us, was in a unit-owner’s apartment on a ladder and unfortunately fell off. He claims to have injured himself and is now suing the owner. The condominium and Solstice are not parties to that lawsuit, but nonetheless it speaks volumes as to how the statute is being interpreted by attorneys who file these claims and by New York courts who process and oversee and obviously adjudicate on them.

You can bet that if an attorney is filing a case for a staff member, they would take the position that the co-op is the landlord and building owner. The risk under the statute has always existed, but the frequency in which these claims are being filed is making all of us a little more leery about how we manage day-to-day operations in terms of unit-owner and shareholder repairs and alterations. 

It’s going to be quite a complex process to manage and I think that unit-owners and shareholders have to be educated on the risks. It’s important to make sure they have their own insurance coverage, notwithstanding the building’s insurance coverage under the traditional property and liability policies. It’s an awakening that is happening throughout the city.