Project Proposals: Watch Out for Two Insurance Conditions

It is not uncommon to be presented with proposals from service providers and vendors that include terms and conditions, often in the form of “fine print” either attached to or located on the back of bids or purchase orders. Providers and vendors often include two conditions that co-op and condo boards need to look out for: first, that the service provider is included as an additional insured on the building’s insurance policies, and second, that the building defend, indemnify and hold the service provider harmless. If boards fail to read the fine print closely — and revise it as necessary — it can have negative consequences.

Boards should always reject any request by a service provider to be included as an additional insured on the building’s insurance policy. If the service provider is included, the building’s carrier would have an obligation to provide coverage for any claims related to the job, even if they arise from the service provider’s negligence, including potentially having to pay to settle a claim or a judgment on the service provider’s behalf. If the building’s insurer is compelled to provide such insurance coverage, there is a significant risk that the building’s insurance company will refuse to renew the building’s coverage or will significantly raise the building’s insurance premium. Service providers should always have their own insurance policies, and those policies should actually provide additional insured coverage to the building, not vice versa.

Boards should similarly reject any requirement to defend, indemnify or hold harmless a service provider. If a board refuses to add the service provider as an additional insured but fails to reject the obligation to indemnify it, the building could be faced with a contractual obligation to pay the service provider’s legal fees out of pocket. If a service provider insists on indemnification, it should be limited to situations where there is a judgment against the service provider solely because of the building’s negligence. Under such a scenario, the building’s carrier will provide coverage and pay any damages the building might owe to the service provider. 

In sum, boards can’t afford not to check the fine print.

Scott S. Greenspun is a principal at the law firm Braverman Greenspun. Jillian Menna is general counsel for Genatt V Insurance Solutions.