When reviewing contractor insurance policies, time and time again, we find exclusions that can completely eliminate coverage for the very work the contractor was hired to perform. In fact, we recently had a situation where a board hired a contractor that we explicitly advised against using because of problematic insurance exclusions. A worker was subsequently injured, and the board is now being sued for labor injuries law and violations. The exact scenario we warned about became reality.
When you hire a contractor, one of the primary goals is to transfer risk away from the association. That transfer is accomplished through proper insurance coverage and indemnification language, additional insured status, waivers of subrogation, and primary and non-contributory wording. However, all of those protections can become meaningless if the contractor’s policy contains exclusions that eliminate coverage for the work being performed. Many of the exclusions we encounter can leave the contractor uninsured and, in turn, leave the association defending claims with its own insurance program.
Injury to Employee / Action-Over Exclusions
This is one of the most dangerous exclusions we see. In New York, an injured employee generally cannot sue their employer because workers’ compensation is their remedy. Instead, they often pursue claims against the property owner, board, managing agent, or other third parties. If the contractor’s policy excludes injuries to employees, contractors, temporary workers, or subcontractors, the contractor’s insurance may not respond when the worker gets hurt.
The result? Your building becomes the target. This is why we routinely recommend that these exclusions be removed before any work begins.
Height Restrictions
Many contractors carry policies that exclude work over a certain height. The frightening part is that many contractors don’t even realize the exclusion exists. We have reviewed policies for contractors working on six-story buildings while their policy excluded work above three stories. If a loss occurs, their carrier will argue that the work being performed was never covered in the first place.
Designated Ongoing Operations Exclusions
These endorsements can drastically narrow coverage.
Some policies exclude specific operations such as:
- Roofing
- Exterior wall work
- Structural work
- Excavation
- Foundation work
- Elevator work
- Fire suppression systems
Others limit coverage to specific classifications or scheduled operations only. If the contractor performs work outside those classifications, coverage may not apply. Imagine hiring a contractor for roofing work only to discover after a claim that roofing operations were specifically excluded on their policy. Unfortunately, we see situations like this all the time.
Condominium and Multi-Unit Residential Exclusions
Another exclusion we frequently encounter is a prohibition on work involving condominiums, cooperatives, apartments, and other multi-unit residential properties. In other words, the contractor’s policy may exclude the exact type of building where they are working. Many boards are shocked when we uncover these exclusions because nothing on the certificate of insurance would have alerted them to the issue.
Independent Contractor and Subcontractor Exclusions
Some endorsements eliminate coverage for work performed by subcontractors altogether. Others contain what we call “hard hammer clauses,” requiring extensive documentation and compliance from every subcontractor on the project. If those conditions are not satisfied, coverage may disappear. This is especially concerning because many contractors subcontract portions of their work without the owner’s knowledge.
Classification Limitations
Many policies only provide coverage for specific classifications listed on the declarations page. For example, a contractor may be insured as a mason, flooring contractor, carpenter, or painter. But then perform roofing, façade, waterproofing, or structural work. If the work falls outside the approved classification, coverage issues may arise.
A Certificate of Insurance is not an insurance policy. It does not list exclusions. A contractor can hand you a perfectly acceptable-looking certificate while carrying a policy riddled with exclusions that make it unsuitable for the project.
When a contractor’s insurance fails, the building often becomes the next target. Contractor insurance reviews are not simply an administrative exercise; they are a critical risk management tool.
Before any construction work begins:
- Obtain the full insurance policies, not just certificates.
- Verify that the classifications match the work being performed.
- Review all endorsements and exclusions.
- Confirm proper additional insured, waiver of subrogation, and primary/non-contributory wording.
- Have a signed contract with strong indemnification language.
- Have your insurance broker conduct a comprehensive contractor review.
As we recently experienced firsthand, ignoring problematic exclusions can have real consequences. The board believed it was saving time and money by moving forward with a contractor with an inferior insurance policy. An injured worker later filed suit, and the association found itself dealing with the exact exposure we warned them about. This claim will now negatively impact their insurance premiums for years to come.
A thorough contractor review before the work starts can prevent years of litigation, increased insurance costs, and unnecessary headaches for boards and property managers. Learn more about our Contractor Review department here, and reach out to us with questions anytime.
