Judging from the calls and emails I get, I'd say that New York contractors are buying a lot of Commercial General Liability Insurance policies that don't provide a whole lot of insurance. Excess and surplus lines carriers, and even some admitted carriers, are more frequently attaching endorsements that remove all coverage for a particular loss if the insured failed to meet specified conditions of coverage. And here's the not-so-secret news: These endorsements work.
Exhibit A: A New York appellate court last fall upheld a carrier's denial of coverage based on the insured's failure to comply with policy conditions. The carrier's endorsement listed a number of conditions relating to the use of subcontractors, including:
- The insured had to obtain certificates of insurance showing liability limits equal to or greater than the insured's from all subs prior to the commencement of work
- The insured had to verify prior to the commencement of work that the sub's policies had not been cancelled
- The insured had to obtain hold harmless agreements from all subs
- The insured had to verify that all subs' CGL policies named the insured as an additional insured
- The insured had to give notice of claim to all potential insurers as soon as practicable
Faiulre to comply with these conditions entitled the carrier to void the policy with regard to a particular claim.
A construction worker fell off a ladder and was injured. He sued the general contractor, who in turn submitted a claim to its CGL carrier. The carrier denied coverage on the grounds that the GC failed to comply with the conditions in the endorsement. The GC sued and won in trial court, but the appellate court reversed the verdict. "(T)he conditions to coverage outlined in endorsement 102A are clear and unambiguous," the court said. "Each of the requirements in endorsement 102A is an express condition precedent to coverage, and the failure to comply with any one of them is a sufficient basis to disclaim coverage."
These endorsements are out there, being sold to contractors who are desperate for liability insurance and who can't get standard coverage. The people who work for carriers are not stupid. They can understand the implications of the seven-figure liability settlements resulting from violations of New York's scaffolding law as well as anyone, and they are acting accordingly. One way not to pay seven-figure settlements is to attach endorsements like this one. In this case, the carrier got the result it wanted.
The court's decision doesn't identify the GC's insurance broker, but I think it's highly probable that the broker is now having regular contact with the GC's lawyer. Hopefully, the broker has good documentation to help defend against the inevitable lawsuit. Regardless, who needs this? Be very afraid of these endorsements, folks.