Exclusions in a Contractor's Insurance Policy Are a Red Flag

New York State’s one-of-a-kind Scaffold Law states that building owners, including co-op and condo boards, bear absolute liability for workplace injuries, even if they’re not at fault. And since contractors’ insurance policies now carry more and more “exclusions” – things their insurance carrier will not cover – that means co-op and condo boards, their managing agents, attorneys and insurance brokers must be on high alert to review the fine print in the insurance policies of everyone who sets foot on the property. Failure to do so can cost millions in claims, plus rising insurance premiums.

The proliferation of exclusions in insurance policies is just one by-product of what’s known as today’s “hard” insurance market. Driven by large losses – including seven-figure jury awards – insurance underwriters began tightening their policies about two years ago by raising premiums, reducing coverage limits and adding exclusions. Excess-liability policies, known as umbrella policies, have also seen rising premiums and declining coverage limits.

Exclusions come in many flavors, and most are poisonous. “One of the primary exclusions we run up against,” says Benjamin C. Kirschenbaum, a vice president and the general counsel of the management company FirstService Residential New York, “is the general-liability policy for the contractor saying, ‘We will not cover you, the contractor, for any claims by a third party (such as a co-op or condo association) that apply to your employees’ claims.’” So, for example, if a contractor’s employee falls off the roof and the contractor’s policy has this exclusion, the board is not covered. Its insurance policy will have to cover any claims – with dire consequences when the time comes to renew the policy.

Another common exclusion is known as the “designated-worker endorsement.” According to Jason Schiciano, a co-president of the insurance brokerage Levitt-Fuirst Insurance, “the contractor’s policy might say, ‘This insurance applies to the following classifications: interior carpentry, interior painting, interior drywall,’ which means everything else is excluded. So if the contractor is doing work on the outside of a building, they don’t have coverage.” Similarly, if there’s a 10-story height exclusion, facade work on the 11th floor and up isn’t covered. “Other policies,” Schiciano adds, “might exclude roof work.”

Exclusions even get geographical. “It’s very common to exclude work inside the five boroughs of New York City,” Schiciano says, “because (the city) has its own worker-injury laws (in addition to the state’s), and jury awards inside the city can be even more substantial than outside the city.”

The most basic thing boards need to realize is that it’s important to review the insurance policy itself and not be satisfied with the certificate of insurance. This is a short form supplied by insurance brokers naming the carrier and stating the dates the policy covers and the limits on coverage – but, crucially, not detailing any exclusions that may exist. “The key message to a board,” Schiciano says, “is that you cannot rely on the certificate of insurance alone as evidence that you are protected by the contractor’s insurance policy.”

Boards do have some leverage. “The board is writing the check,” Schiciano says. “If the contractor wants to bid a job or have an opportunity to continue working in a building, then the contractor has to fork over not only his full general-liability policy but also his umbrella policy. If they don’t want to do that, that should be a red flag.”