I'm on a condo board and I want to make sure that we're covered by residents' insurance when they do renovation work. What do I need to know?
The way building boards handled insurance requirements for individual apartment renovations was pretty standard for quite a while, but unbeknownst to a lot of building boards and contractors, New York courts have made a series of rulings that could leave boards exposed to liability if something goes wrong in a resident's apartment construction job, unless the building makes a very specific change to its alteration agreements.
So says Steven Wagner, a real estate lawyer and partner at the firm Wagner Berkow, who represents co-op and condo boards. Wagner explains, "The insurance companies sell insurance but in New York it’s a highly regulated industry. Your insurance consists of a policy and a series of endorsements, which are just forms approved by the Insurance Department for use with insurance policies. The problem is that a standard endorsement used in the contractor’s policy may not provide the expected coverage. The legal landscape has change."
A lot can go wrong when someone is redoing his co-op or condo.
"A fire could start. A pipe could break. Someone could fall and get injured," Wagner explains. When that happens, "Everyone winds up getting sued. The problem now is that what co-ops and condos typically ask for, which is to be named as 'additional insured parties' on the assumption that that is all that is needed to get them covered under the apartment owner’s policy or under the contractor’s policy, is no longer correct."
The opening for a building to be held liable for an individual apartment owner's contractor foul-up lies in a small piece of language in the contractor's insurance policy. A typical insurance policy says that the policy covers the contractor and anyone the contractor is contractually obligated to cover.
"Courts have interpreted that literally, and require a contract between the contractor and the party to be covered," Wagner says. And because building boards don't typically sign contracts with contractors doing renovations on any given apartment, a renovation snafu could wind up having to be covered by the building's insurance policy. This could drive up the premium, or worse, the building could end up not covered at all.
There's a way to fix this. What you as the board need to do is to take a close look at the alteration agreement you have residents sign for construction work, and add in a requirement that the contractor’s insurance contain an endorsement form known as the CG 20 38 when seeking approval for renovation. The CG 20 38 is a broad form endorsement and allows the building to be covered by a contractor's insurance as an "additional insured party" without the building having to draw up a whole separate contract with the firm.
Wagner warns, "Don’t rely on the certificate of insurance. It does not create coverage by the insurance company for the condo even if it names the condo and its managing agent as additional insured parties."
As things stand now, Wagner says, "If the condo’s alteration agreement just requires the apartment owner to have the contractor renovating the apartment, 'Name the condo as an additional insured party,' the form of endorsement typically used by contractors—which covers only parties who the contractor is contractually obligated to provide insurance—will not likely cover the condo.”
This is a problem because, as Wagner says "Contractors are not aware of it, and boards are not aware of it. It only comes up when an insurance claim is made. By then it is too late."
So again, to avoid this, the managing agent should add to your building's alteration agreement a requirement that the person renovating have the contractor doing the work use endorsement form CG 20 38 to make sure the building is covered.
"He issues this, and you’re all happy," Wagner says.
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.