Recently, one of our commercial co‑op clients experienced a significant property loss that serves as a powerful reminder of why proper contractor vetting is essential—not just for the building, but for every unit owner as well.
What Happened
A unit owner hired a contractor to perform work inside their apartment. Unfortunately, the contractor was uninsured. During the job, a pipe was accidentally broken, causing major water damage throughout the building. What began as a localized incident quickly escalated. Water initially flooded the unit where the work was being done, then traveled downward, ultimately affecting 14 bathrooms in total.
The Financial Impact
Mitigation, restoration, and repairs for the affected units totaled over $170,000.
Because the contractor had no valid insurance—and because the unit owner’s insurance did not adequately cover the damage—the co‑op’s own property carrier ultimately stepped in and covered the loss. This outcome protected the co‑op financially, but it also underscores a crucial risk management lesson: Even one uninsured or underinsured contractor can create a six‑figure problem for the entire building.
Why Contractor Vetting Matters
Co‑ops, condos, and multifamily buildings face unique risks when outside vendors enter the premises. A contractor working in a single apartment is still working within a shared structure, meaning their mistakes can easily impact dozens of units.
To protect both the building and its residents, every contractor who performs work on the premises should provide:
- Valid Certificate of Insurance (COI)
- General Liability and Umbrella/Excess coverage with limits appropriate for your building
- Workers’ Compensation insurance if they have employees
- Additional Insured status naming the co‑op or HOA
- Hold-harmless and indemnification agreements when appropriate
- License verification based on trade (plumbing, electrical, etc.)
When these items are not collected upfront, the building inherits the risk – and as this claim demonstrates, that risk can easily exceed $100,000.
The Role of Building Management and Boards
Property managers and co‑op boards should:
- Require COIs for every contractor, even when hired by a unit owner
- Maintain a documented approval process before any work begins
- Keep a current list of pre‑approved, fully insured contractors
- Communicate the building’s contractor requirements clearly to all residents
- Enforce compliance consistently – no exceptions
These steps dramatically reduce exposure and help ensure that, if something goes wrong, the responsible party—not the co‑op—pays for the damage.
A Success Story… With a Lesson
While we were pleased that the building’s policy responded and the loss was ultimately covered, it’s important to recognize that the claim could have been avoided entirely with proper contractor vetting. This event serves as a reminder: Insurance protects you when things go wrong. Proper risk management prevents problems from occurring in the first place.
If you’d like help reviewing your building’s contractor requirements, improving your COI collection process, or evaluating your current insurance program, reach out to us anytime.
