When Insurance Doesn't Insure

Take a lesson from the co-op at 720-730 Fort Washington Avenue in upper Manhattan. In 2007, the board hired a reputable contractor to perform renovations. It’s typical in such situations for the contractor to bring in a subcontractor to do part of the work, which is what happened here. These “subs” are often small companies, with only two or three employees.

Both the contractor and the sub had general liability insurance, which provides legal protection in the case of an accident. The subcontractor’s policy was from Utica First Insurance Co., and it followed the standard practice of naming both the co-op and the general contractor as additional insureds.

During the job, one of the subcontractors was seriously injured, and the worker sued the co-op. The board, as is typical in occurrences like this, contacted Utica First, requesting coverage because the co-op had been listed as an additional insured party.

That’s when this injury and insurance story went off the rails.

The claim was denied. Two main reasons were offered by the company. First, they said, injuries were not covered “if the injury arose out of that person’s employment [to a hired contractor].” And second, injuries were not covered if the accident occurred because of “roofing operations,” according to court papers.

(Utica First, headquartered outside Utica, New York, did not respond to a request for a comment.)

The outraged board sued Utica First, claiming that its “insurance coverage was illusory...and did not provide coverage necessary for a construction project.” The judge in the case apparently agreed, calling the policy “worthless” but ruling that Utica had done nothing illegal in writing it.

“Let the buyer beware,” the judge warned. In other words: read the fine print.

“Nobody reads the policy,” says Michael Spain, president of The Spain Agency, an insurance brokerage. “We know the bad players; we have a list. The broker should be saying, ‘Hey, this policy doesn’t cover this!’”

Spain adds that there are many small contractors – primarily those with only two or three employees – who use Utica First. “Their bailiwick is small guys,” he explains. “If you had 10 employees you probably wouldn’t fit into their program; if you had two or three, you probably would. Those [contractors] are generally the most unsophisticated. A lot of these contractors are ‘see no evil, hear no evil’ types. As long as they get on the site and get paid, they don’t really have a problem – until they have a problem.”

The main attraction to these smaller contractors is the low monthly premiums. “They get the Utica First insurance because it's really cheap,” says attorney James Samson, a partner in Samson Fink & Dubow. Agrees Spain: “It could be 20 percent of what the contractor’s going to pay if he used someone else.”

And Utica First is not alone in its coverage practices. “There are about four or five companies that [have similar exclusions], but Utica First [has] the most damning [ones],” says Spain. “Utica First does business all over the state and in Connecticut, and people are so unsuspecting. We tell building owners, ‘Don’t let them on the site. Get rid of them.’”

Samson says that many boards and their managers are still using contractors that have coverage from Utica First. “I'm willing to bet that 35 percent of the contractors in this industry have it,” says Samson. “They don’t check it.”

Spain and Samson both echo the court’s “buyer beware” admonishment. “To me,” says Spain, “it’s taking advantage of the unsuspecting client or co-op.”

Jim Goldstick, a principal in Mark Greenberg Real Estate, a management company, says that his firm doesn’t accept Utica First policies. “We either get a different policy or a different contractor. What’s the use of having insurance if they don’t pay on claims?”