In an AP news story released today called “Insurance Policies May Be Limited in Crane Collapse” it’s revealed that the NY Court of Appeals stated that coverage may be limited by misrepresentation on insurance forms and applications. Alliance Insurance claims Joy Contractor’s Inc. said it specialized in “dry wall installation” did not do “exterior work” AND did no work above the second floor except for drywall installation. The problem here is that on this particular job a crane collapsed killing one person and caused millions of dollars of property damage.
The NY Court of Appeals ruled that not only is there no coverage for Joy Contractor’s Inc., but also the “additional insured’s” which included the general contractor, Reliance Construction, and the owners and developers. Isn’t that lovely!
I can’t tell you how many property owners, general contractors, and developers I have spoke to over the past 10 years who told me “Yeah we have really tight controls on our sub’s. No one gets paid unless we have an updated Certificate of Insurance on file for each sub for as long as they are on our job site.” Arms crossed, smirking with that incredulous look on their face saying, “take that mister insurance guy and stick that in your pipe.”
Tragic as the crane collapse was, it really should have been a huge wake up call for all general contractors, property owners, and developers throughout the NY Metropolitan Area as it provides a case study of how bad things can go wrong and what could be done differently to prevent the same mistakes. The NYC Department of Buildings passed a new rule as it related to NY Contractors Commercial General Liability Insurance that went into effect as of June 13th, 2011 as a result of this case.
Rather than have me drone on about the importance of risk transfer as it relates to your projects and your subs here succinctly stated are the takeaways.
CRANE COLLAPSE TAKEAWAYS:
- Mind the store, (think Corzine, Dimon, -----). Construction is dangerous. If things go real bad you can go to jail and be in financial ruin without tight controls. Audit your people for safety and compliance. Trust your friends, but cut the cards anyway.
- Certificates of Insurance are a farce, there I said it whew , I feel much better. Think Joy Contracting. In the above example the Certificate of Insurance stated nothing about a height limitation to only 2 stories just for drywall. Their Certificate looked like everyone elses. YOU MUST READ THE INSURANCE POLICY BEHIND THE CERTIFICATE TO KNOW FOR SURE WHO RETAINS WHAT RISK. ONLY THEN WILL YOU KNOW IF THE SCOPE OF WORK THEY ARE PERFORMING IS INSURED.
- Invest in updating and augmenting your Master Sub Agreements and G.C. contractors for every new job as they are all different. We just did a contract review for a client that was part of their scope of work they were responsible for the asbestos abatement. Our client was a G.C. whose contract that was signed and executed by the abatement sub did not obligate the abatement contractor to carry pollution insurance nor were they obligated to be added to the pollution policy as additional insured. Coordinating and paying attention to the contractual details will save you much in blood and treasure.
- Hire a specialist that can help you design and manage a sub contractor/vendor qualification system whose main focus is on verifying the sub contractors insurance coverage is coordinated with the contractual obligation they committed to. RISK ROCKET is one example of such a system whereby they read most of the sub contractors insurance policies, report back to the PM the status and then most importantly try and fix the most egregious coverage issues if the Owner or G.C. instructs them too.
- Insurance is expensive and getting more so as the market hardens. Don’t jump at the cheapest insurance quote as it could be the most expensive transaction of your companies short life.
The good news here is these problems have cost effective solutions. Don’t just shake your head and agree, execute on this thoughtful list. Don’t let your education be expensive or lethal.