Time after time we have seen associations receive a one-page form contract or proposal from a contractor for thousands of dollars in work or services. Even if the job seems quick and simple, there is risk when a party is doing work on association property. Appropriate insurance coverage is necessary to mitigate that risk. Unfortunately, the one-page contract or proposal usually does not typically require the contractor to maintain adequate insurance coverage. Or worse yet, might require the association to insure the contractor. Some associations are not sure what insurance coverage their contractor should have. If that includes you, the descriptions of various types of insurance coverage below can help determine whether the contractor has sufficient insurance.
Comprehensive general liability (“CGL”) Coverage
Requiring a contractor to have general liability insurance is a prudent measure for several reasons. Firstly, general liability insurance provides protection against potential construction defect litigation, which is typically complex and expensive. This type of insurance helps offset the cost of defending lawsuits where the general contractor’s liability is claimed to be derivative of their work, thus providing financial security and peace of mind to both the contractor and the association.
General liability coverage would ideally include the following:
- Products and completed operations provision to cover claims related to bodily injury or property damage arising from the contractor’s completed work, essentially covering issues that occur after the construction project is finished and handed over to the association, like faulty workmanship or defective materials that cause damage. Ideally, the contract would require this coverage be maintained for ten (10) years, but at a minimum at least as long as the longest applicable statute of limitations for the contracted work so there is coverage down the road for such defective work.
- Broad form property damage provision which protects a contractor from property damage caused by their subcontractors while working on a project.
- Additional insured endorsement naming the association and their agents as additional insureds. Being listed as an additional insured is important to ensure the association is protected by the contractor’s insurance policy. It is unlikely that the association’s liability policy would cover damage resulting from a third party’s work so it’s important that the association is named under the contractor’s coverage. Additionally, being named an additional insured often allows an association to make claims directly to a contractor’s insurance carrier rather than having to wait for the contractor to make the claim.
- Separation of Insureds clause which stipulates that the policy’s coverage is to apply separately to each insured against whom a claim is made. Severability of interests guarantees that the policy will respond to a suit brought against one insured by another insured. Practically, this means that the carrier will provide coverage to the contractor even if another insured – the association – sues, or vice versa.
- Waiver of subrogation clause applied in favor of the association and their agents which prevents the carrier from recovering the money they’ve paid out on a claim arising from a negligent third party’s actions. This avoids lengthy and costly legal disputes, particularly if the association or its agent was in any way negligent.
- Premises and operations coverage with no explosions, collapse, or underground damage exclusion. This coverage requires the carrier defend claims that arose while on the association’s premises.
- A stipulation the contractor’s insurance is primary and any duplicate coverage the association has is secondary and only applies after the contractor’s coverage is exhausted.
Any general liability policy should not include an attached, residential or condominium project exclusion or an insured versus insured exclusion.
Workers’ Compensation Insurance
Workers’ compensation coverage is important because it provides benefits to injured workers and their dependents and holds employers liable for work-related injuries. Workers’ compensation provides benefits such as medical care, wage replacement, and disability benefits. Contractors are generally required to maintain certain amounts of coverage by law, even if it is not written into your contract. Prior to January 1, 2026, sole proprietors are not legally required to obtain workers compensation, unless they are engaged in high-risk activities like roofing. However, effective January 1, 2026, all active contractors must have workers’ compensation insurance, even sole proprietors, associations sometimes require it to protect themselves from potential liability if the contractor gets injured on the job and tries to sue for medical costs. Moreover, while someone may claim to be a sole proprietor, if you see they have another helping hand – be it a relative or good friend – then they technically have an employee and workers’ compensation insurance is required.
Automobile Liability
If the contractor is driving on your property, they need to be properly insured with owned, non-owned and hired motor vehicle insurance for themselves and their employees.
Professional Liability Insurance
This coverage is more typically seen for design professionals (or general contractors working on a design build project) and covers claims arising from the professional’s services, not just defective designs but potentially other mistakes like cost overruns and missed deadlines.
Property Insurance
It helps to require contractors and their subcontractors maintain property insurance coverage for physical damage of their property, supplies, and equipment (whether or not owned by them) that are not covered under builder’s risk insurance, if any.
Builder’s Risk Insurance
This coverage protects projects and materials while the work is ongoing. For example, once materials are installed, they are considered a fixture of the property and generally covered by an association’s general liability insurance. Builder’s risk insurance covers uninstalled materials which are not typically otherwise covered by property insurance so materials lost by a sudden occurrence, like a fire, would be a sunk cost. Builder’s risk insurance helps avoid the parties quibbling over who is responsible to replace any uninstalled materials.
Employment Practices Liability Insurance (“EPLI”)
EPLI insurance protects from claims arising from employment-related claims, like wrongful termination, discrimination, and harassment. It is unlikely that a contractor has this coverage so they may increase their cost estimates if the association requires it be obtained. However, this can be especially important for longer term contracts where the contractors may have more interface with the association’s agents or residents. If, for example, a resident claims they feel harassed by the contractor’s worker and the resident sues the association, this coverage will be necessary to help defend that claim.
Special Considerations
Your contracts should require the contractor to provide the association certificates of insurance and additional insured endorsements prior to the commencement of any work. The association should be notified at least thirty (30) days prior of any cancellation or nonrenewal of coverage. Subcontractors should also be required to maintain all the coverage the contractors do. Perhaps most important of all, the association’s insurance broker should review the contract insurance provision before it is signed. The association’s broker knows what coverage the association has and can identify any gaps in coverage which need to get closed before the contract is signed. You should also discuss what the amount of the policy limits should be with your insurance broker as that will vary based on what the project is.
This is just the tip of the iceberg! These are generally the types of coverage to look for, however, we are not insurance professionals. We strongly suggest you discuss all contracts with your insurance broker as the needs for your specific project may require different types or amounts of coverage. We also strongly suggest you an association have any contract reviewed by the association’s legal counsel.
