By: AJ Scott, CPCU, CIRMS
When it comes to hiring qualified business partners for your community association, it can be difficult to know where to start. Attached as an exhibit to this article, you’ll find a sample checklist that runs through some basic steps to take, and items to look for, when your association hires a contractor and reviews their insurance. Please note that this document is provided as a courtesy and is not exhaustive. And of course, it is up to each Board’s discretion which fields to require and which to dismiss – completion of this checklist is NOT mandatory or required by the association’s insurance carriers*; it’s just a good risk management tool.
*Note: Some General Liability carriers do have specific “risk transfer” requirements with respect to hiring independent contractors; you can check your original application for coverage to find these, if applicable. Additionally, if you maintain a 0-payroll (“if any”) Workers Compensation policy, your carrier likely does require the association to hire only licensed and insured service providers (and obtain and maintain certificates of W/C insurance from all contractors) in order to qualify for their minimum premium, but they do not require completion of this checklist.
We believe that associations are BEST protected when they hire only licensed and insured business partners. Here is why:
Why a LICENSE is critical:
- In California, if you hire an unlicensed worker to perform a task for which a license is required, you become their employer by default – they are no longer an independent contractor, and if they are injured on the job, YOU are responsible for Workers Comp benefits. (If the association doesn’t have a Workers Comp policy, this becomes extra scary: see our video Why Do We Need Workers Comp? for a detailed explanation of this.)
- A license provides some assurance of at least a minimum level of competence. (This doesn’t guarantee quality work, but at least it’s something.)
- A correct license would provide “an avenue of grievance” in the event of a dispute.
- The state of California maintains a database of complaints against licensed contractors (as well as whether he or she has ever lost the license or been sanctioned), which can serve as a valuable resource.
- An unlicensed contractor may be less likely to obtain a permit for work that might require one – this could impact property values or salability.
Why INSURANCE is critical:
- The contractor’s General Liability coverage should cover their actions during the course of their work. (i.e. if they were to inflict bodily injury or property damage while working on your premises, you would want their insurance – not the association’s – to respond)
- Their Products & Completed Operations Liability coverage should insure their work after they are finished. (e.g. if their faulty workmanship were to result in bodily injury or property damage six months from now, etc.)
- Their Workers Comp coverage should cover injuries sustained by their employees while on the job.
Just having insurance, though, might not be enough. Ideally, any contractor hired by the association should also name the association and your management company (if applicable) as “Additional Insureds” under their (the contractor’s) General Liability policy. This way, if that business partner’s operations (active OR completed) on association premises result in a third party’s bodily injury or property damage, and the association and/or management company is named in the ensuing lawsuit, both the association and the management company will be entitled to defense and indemnity under the contractor’s policy, instead of incurring a loss under the association’s insurance. And it’s BEST to obtain copies of the formal policy endorsement(s) reflecting the association, management company, and your mailing address (as opposed to merely a certificate), because a certificate is a “matter of information” only and does not entitle these parties to receive direct written notice from the insurer in the event of cancellation or non-renewal. (An endorsement does!)
With this said, we can tell you that the vast majority of contractors maintain “blanket”-style Additional Insured endorsements, which state that their insurance will extend these protections as required by written contract or agreement – in other words, the endorsements will be activated ONLY if your contract with that vendor specifically requires them. This is why it is so important for associations to have a STANDARD WRITTEN CONTRACT in place with all business partners.
A knowledgeable attorney specializing in community association law will be your best resource for preparing this, but we recommend, at minimum, that such contract should include the following requirements:
- For any claims/ suits arising from THEIR (the contractor’s or any subcontractor’s) operations or completed operations on your premises, the contractor will indemnify and hold the association and management company harmless.
- The association and management company will each be named as an “Additional Insured” on the contractor’s General Liability (GL) policy, including primary and non-contributory wording.
- The contractor shall maintain Workers Compensation (W/C) coverage during the entire time they are working on association premises.
- The contractor agrees to waive subrogation against the association and management company under both their GL and W/C policies.
- The contractor’s GL policy shall NOT include a “Residential Exclusion” or other similar exclusion barring coverage for work performed for a community association.
Finally, you will notice a couple of additional exhibits to this article; these are some of our previous articles that are peripherally related to this topic – the first is about the importance of requiring a “Waiver of Subrogation” endorsement under a contractor’s Workers Comp coverage, and the second is about hiring handymen in general.
|Workers’ Comp Waiver of Subrogation from Contractors|
|Hiring a Handyman|
NOTE: This article is meant to provide some initial guidance to smaller associations with no employees. As indicated by the title, it’s intended to be a starting point, NOT a comprehensive guide, and it may not be suitable for larger communities with on-site managers, staff, and/or an active and sophisticated Board and committee presence. Please further note that we are not attorneys. The information contained in this article is intended to inform, but does not constitute legal advice. We urge you to consult your legal counsel for their opinion on any issue addressed in this writing. A knowledgeable community association attorney should always be your primary resource with respect to contract language.