Liability insurance is essential for protecting a business against losses caused by injuries or damages the business causes to others. As at least one contractor and a project owner found out, however, the extent of the coverage the policy provides is extremely important. A policy that does not provide the needed coverage is worthless to that business, but a court might find that even a worthless policy is legitimate.
Fort Washington Avenue Owners Corp. hired DNA Contracting to renovate its property. DNA, a general contractor, hired Rauman Construction Co. to do the masonry and roof replacement parts of the project. The contract between DNA and Rauman required the roofing company to obtain Commercial General Liability insurance and to have the policy name both Fort Washington and DNA as additional named insureds. Rauman had an insurance policy provided by Utica First Insurance Co., and the insurance company added the two additional insureds as the Rauman requested. In March 2007, a concrete block fell on one of Rauman’s employees and injured him. The worker sued Fort Washington for his injuries, citing its obligations under New York State Labor Law. Fort Washington notified Utica First of the claim and requested coverage, since it was an additional insured under Rauman’s policy.
However, Utica First denied the claim. It said that provisions in its policy meant that the insurance did not apply to:
- Injuries suffered by any employee of an entity insured under the policy, to any contractor hired by an insured entity, or to any employee of a hired contractor, if the injury arose out of that person’s employment.
- Injuries or damages arising out of roofing operations, including roof replacement or recovering of an existing roof.
- Injuries or damages for which the insured entity was liable because it had assumed the liability under a contract.
The claim involved an employee of Rauman, an entity insured under the policy; it arose out of Rauman’s roofing work; and it involved liability that Rauman assumed in its contract with DNA. Consequently, Utica First said that its policy did not apply to the claim. Fort Washington sued Rauman, demanding that Rauman compensate it for its costs. It also sued Utica First for coverage under Rauman’s policy. Utica First argued that its insurance did not apply because of the provisions regarding employees and roofing operations. Fort Washington argued that Utica First’s insurance coverage was illusory and against public policy, since it did not provide coverage necessary for a construction project.
The court disagreed. It said that public policy prohibits insurance companies from limiting their coverage to less than that required by law. Although noting that “the exclusions buried within (the policy’s) terms rendered it inadequate for the purposes intended,’ the court said that the policy “violated no regulation or statutorily declared public policy regarding the contents of an insurance policy.” It went on to say that “the issuance of this worthless policy” did not directly violate the public policy objective of the state Labor Law, which was to protect construction workers. It acknowledged that the lack of insurance rendered that protection hollow, but since the state legislature had not enacted minimum requirements for Construction insurance, the court could not impose them. The applicable rule in this case, the court said, was “let the buyer beware.”
Contractors should be very careful when selecting insurance companies and policies for purchase. A policy that does not provide necessary coverage can leave a contractor in breach of contracts and uninsured for liabilities that may run to hundreds of thousands of dollars. The best advice: Examine offered policies thoroughly and reject any that leave coverage holes as large as this one did. That’s where we come in: As your insurance agent, we will assist you in examining the intricacies of your coverages with you in order to ensure that they meet the needs of your particular situation.