FEATURE
From Boring to Full Panic Mode in 60 Seconds— Avoiding Problems When Hiring Contractors By Patrick Prendiville, CIRMS
THE ABC’S OF ADDITIONAL INSUREDS
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ommunity managers and board members are tasked with overseeing many things at once. While some of these tasks seem to be pressing at the moment, like what plants to choose in the entry, any resulting problem may be short lived--thankfully. Then, there are the more mundane details that need to be navigated, like taxes. If everything goes well, no one notices. But, when things go poorly, it’s a different story. Or, perhaps you are hiring a contractor to work on the association grounds--what could go wrong? Well, with a proper (and boring) Additional Insured Endorsement, you may be able to avoid problems that would otherwise cause financial loss and aggravation. In its most simple terms, the concept of receiving additional insured (A/I) status means that the HOA is going to rely on the insurance policy of another party (contractor) to protect the HOA from lawsuits related to the contractor’s work. The following are some important details and concepts to keep in mind. Additional Insured Endorsement: This is a document, received for an upcoming construction project, or even the renewal of an annual contract from a service provider and is not the same as a Certificate of Insurance. The A/I Endorsement provides the HOA and management company with extra protection. So, while a contractor’s Certificate of Insurance does a great job of proving coverage by listing the insurance company, policy number, etc., it doesn’t provide any further value beyond providing information.
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Quorum September, 2019
LET’S TAKE A LOOK AT TWO POSSIBLE SCENARIOS, WITH AND WITHOUT A PROPER A/I ENDORSEMENT:
1) Scenario One: Randy the Roofer slips on the tile roof he’s working on and one of the tiles hits Mrs. S., causing a head injury. Mrs. S sues the HOA and Randy the Roofer. Both entities put their respective insurance carriers on notice. Because there is a proper A/I Endorsement in place, Randy the Roofer’s insurance company picks up the entire cost of defense and eventual payout for the injuries sustained to Mrs. S. The Association’s carrier closes the claim without payment and takes an attitude of “no harm, no foul.” I’m sure you would agree--a safe and sublimely boring scenario.
2) Scenario Two: Same details as above, but because there was either no A/I or an invalid one, Randy the Roofer’s insurance carrier tells the HOA that while they are defending their contractor client, they will not be providing a defense for the HOA.
As the HOA is named in the lawsuit, their insurance company mounts a defense. Besides the wasted time of the manager and board, the HOA’s carrier would have spent potentially thousands of dollars just in the defense of the claim and the result would be to potentially increase the insurance rates of the HOA due to the claim payment. Nobody is happy.
