The Impact of Contractor Liability Ensuring Insurance

The Impact of Contractor Liability

We all know that accidents happen, but in today's litigious environment, an accident or injury occurring on the grounds of your condo or townhouse community can lead to thousands of dollars in legal fees, court costs, and potential judgments, even if the incident is relatively minor.

When construction projects of any kind are underway, the chances for accidents and mishaps rise significantly; an association member might trip over a wayward piece of equipment, a poorly-placed piece of building material could fall and cause injury or property damage; the possibilities are vast. That's why it's vital for associations to understand at least the basics of contractor liability and where their legal responsibility intersects with that of the professionals they bring onto their property.

Not Always Cut-and-Dry

Say your association hires a landscaping firm to do some work on the community's grounds. In the course of the work, the cover on top of a water meter pit gets moved, and somehow doesn't get put back correctly. Some weeks later, some kids from the association are playing on the grounds, and one trips over the pit cover, injuring himself seriously enough to require medical attention. Since the landscapers moved the cover in the first place, they clearly bear sole responsibility for the child's injury, right?

Not necessarily. "In a situation like this, it's not as black and white as everyone would like it to be," explains Gerard Mazzara, property manager at Cedars at Basking Ridge in Bernards Township. "The association has a certain responsibility to ensure safety, and the landscaper has the responsibility to report such things to the manager, and the [utility company] installed the pit, so all three would be liable."

That's why it's important that condos and co-ops protect themselves by making sure that the contractors they hire are carrying the proper insurance. In a scenario like the one above, a large judgment could be awarded and an association would have to pay if they weren't covered.

"An arbitrator might come in and listen to all parties involved and may decide to settle [a case like this] for $100,000," says Mazzara. "Of which $25,000 would be paid by the landscaper, $50,000 by the water company and $25,000 by the association."

But by having their contractors insured, the association's part in this incident would be covered by that insurance agreement. Contractors should not only be licensed, but also properly insured to make sure that an association doesn't become party to a major lawsuit in case injury or damages occur during the course of or as a result of the work done for the association.

Act Responsibly

When it's time to hire a contractor, a lot more is required than just picking up a phone and hiring someone.

"The first thing you would do is have a working, well-developed set of specifications for the work that you are seeking," says Mazzara. "You would take that and send it out to a select list of contractors requesting bids. When the bids come in, they are compared and reviewed and shrunk down into a spreadsheet-type presentation to the board of trustees. The board decides which ones are viable and which ones they want to interview. The board then makes a decision and approves that at an open meeting, and then the contractors are selected and an attorney draws up contracts with the specs attached."

Once a contractor is selected, it is usually the role of the property manager to make sure that the contractor is carrying all the proper insurance necessary to do the job—but it is still the association who can expect to be held responsible if something goes wrong.

"Obviously, if the contractor is working on common property, the association would be responsible," says Curt Macysyn, executive vice president of the New Jersey chapter of the Community Associations Institute (CAI-NJ). "In terms of an individual unit, the unit owner would bear the responsibility."

To partially address the issue of responsibility, a bill called the Contractor's Registration Act was signed earlier this year, taking effect in November and requiring residential home improvement contractors to register with the state. According to the New Jersey State Attorney General's office, a home improvement contractor is "any person, whether a sole proprietorship, partnership, corporation, limited liability company, or any other type of business organization that is engaged in the business of selling or making home improvements," and the Contractor's Registration Act "requires any contractor engaging in the business of making or selling home improvements, whether an individually owned business or a corporation, limited liability company, partnership, or association, to register annually." Subcontractors are required to register as well.

And how does this impact HOAs? Well, the act "exempts from the registration requirements individuals employed by a community association or cooperative corporation—commonly referred to as handymen, superintendents, and/or maintenance workers—who make home improvements within the scope of their employment at the residential property owned or leased by the community association or cooperative corporation."

"We don't register contractors working on maintenance and renovations," says Jeff Lamm, spokesperson for the New Jersey Division of Consumer Affairs. "Drywall installers, roofers—those professionals don't have to register with us, so they are not regulated."

According to Jim Rademacher, chief executive officer of Rezkom Enterprises in Wall, which specializes in condo and townhome maintenance, painting, and renovations, the condo industry requires three basic types of insurance: general liability, worker's compensation and auto insurance.

"Most condo associations wouldn't allow anyone to work on the property without them," Rademacher says. "Generally you're required to have $1 million dollars for general liability, $500,000 to $1 million on auto, and whatever the state limits are for workers comp. That's usually how it's stated in the contract."

Contracts are generally the same throughout the industry. Attorneys for property management companies typically draw up these contracts and state minimum requirements for insurance, and contractors must abide, or they won't be allowed to begin work.

"When we sign a contract, we sign a 40-hour-a-week maintenance contract where I provide a man on site," Rademacher says. "If he drops a ladder on someone's car, that insurance claim is going to come to us first because we hold the associations additionally insured. That claim goes to me, and my insurance company would take care of it, relieving the association of any responsibility."

What They Protect

Most contracts call for at least $1 million in general liability. This is insurance that protects the board or association from a negligent contractor.

"If somebody leaves a tool or something on the grounds and a resident or guest is injured by tripping over it or in some other way, that [general] liability would cover that," Mazzara says. "Of course everyone gets sued and the lawsuit would include the association and the contractor, but unless it's an extreme circumstance, the contractor would probably end up the negligent party with the lion's share of the loss."

The half million to $1 million-dollars-worth of auto insurance is to protect against any accidents that involve vehicles operated by a contractor.

"If we send a guy out to do a work order on any site and they hit another car or hit a building, we would be responsible," says Rademacher. "All of a contractor's vehicles have to be insured."

Workman's compensation insurance covers anyone working on a job that was contracted out and is injured while performing that job and can no longer work.

Safety First

Even if an association has contracted out a job, there are still several easy safety measures that can be taken to help reduce the risk of possible injuries and lawsuits.

"There are all sorts of safety measures that can be and should be taken to minimize trips and falls, slip and falls on ice, and measures for workers themselves," says Mazzara. "Any unsafe behaviors such as speeding, or disregarding signage for children at play, or stop signs throughout the community [should not be tolerated].

Blatant disregard for the rules is relatively rare, however, and most agree that it's the common occurrences that are easiest to solve. Uneven or crumbling sidewalks are potential trip hazards. Snow removal contractors during certain weather conditions do what they call "ice watching," where they continue to watch the icing up of a community and they take the appropriate actions to [remediate] that problem."

Calling in Subs

Sometimes a contractor may need a little help or have to call in a subcontractor to do some part of a job, and it's vital that the contractor makes sure that the person they are subcontracting has all the proper insurance.

"What happens is my insurance is still the one that goes to the association," says Rademacher, "and if I'm going to subcontract out, it's my responsibility to get the subcontractor's information and make sure it's valid. "Basically, [it's my job] to verify the certificates of insurance are authentic. What I find with a lot of subcontractors is they can have insurance today, fax you a certificate, not pay their premium for the month, and then get cancelled in the midst of your project. My insurance would end up covering them and I would get an insurance audit and charged for the premiums that that person should have paid."

For his association's part, "We just don't allow subcontractors," Mazzara says. "You can't control the insurance situation closely enough. Some people do or are silent about it, but in our contracts we say that they cannot have a subcontractor without our explicit written permission."

Whether your association is small and of modest means, or sprawling with an impressive reserve fund, being sued for construction problems without adequate contractor insurance can be a significant blow. By doing all the homework beforehand and requiring appropriate insurance coverage from its contractors, however, your association can minimize its exposure and make sure the right people are handling the consequences of their own liability.

Keith Loria is a freelance writer and a frequent contributor to The New Jersey Cooperator.

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