Condo/Coop Unit Owner Alterations: Does The Contractor Need To Carry Coverage For New York Labor Law (Action Over Insurance)?

First, let’s just say if you don’t know what New York Labor Law (Action Over) liability is read here before reading this post.

So, the question being discussed is does Labor Law/Action Over liability apply to unit owner alterations. The short answer is explained in the following chart.

	Coop		Condo
Who Hired the Contractor?	Unit Owner Work	Building Work	Unit Owner Work	Building Work
Does New York Labor Law Apply?	Yes	Yes	Probably Not	Yes

What makes Condo unit owner alterations so special?

A decision of the New York Court of Appeals Guryev v. Tomchinsky, __ N.Y.2d __ (Dec. 11, 2012), addressed this issue by distinguishing between cooperatives and condominiums.

New York’s Labor Law, §241 requires, generally, that “All contractors and owners and their agents, except owners of one and two family dwellings who contract for but do not direct or control the work, when constructing or demolishing buildings … shall comply with…[a lengthy list of work and work-site safety practices identified in the statute or promulgated by the Commissioner of Labor].”

In Guryev an employee of a contractor hired to perform alterations in a condominium unit owner’s apartment was injured during the performance of the work.  While using a nail gun to install molding, a nail ricocheted and struck his eye.  He did not have eye protection.  He sued the unit owners, the condominium, the condominium’s board of managers, and the board’s managing agent for, among other things, violation of Labor Law §241 and regulations concerning eye protection.

The apartment alterations were contracted for by the unit owner and were being performed pursuant to an alteration agreement in which the condominium board retained the power to approve the alteration plans, require changes thereto, and enforce compliance with all applicable laws and regulations.

In a split decision,  the Court of Appeals majority held that the condominium and board of managers are not liable under Labor Law §241 because each condominium unit is a separate parcel of real property and the condominium and board are neither the “owner” nor an agent of the owner of the unit, notwithstanding that the condominium “owned” the land under the building, managed the building and exerted control over the work in the unit by way of the alteration agreement.

The result should be the same in a cooperative, right?  In both cooperatives and condominiums, apartment alterations are undertaken by the apartment owner pursuant to an alteration agreement with the board.  But no.  The majority opinion in Guryev notes and distinguishes other opinions holding cooperative corporations to be “owners” with liability under §241 to workers injured in the course of shareholder apartment alterations, because in a cooperative title to the building is held by the cooperative corporation and the shareholder is a proprietary lessee.

This reinforces the importance for cooperatives to use alteration agreements that require shareholders (a) to comply with all applicable laws and regulations in performing alterations, including Labor Law §241 and its regulations, (b) to indemnify the cooperative against all liability in connection with violation of such laws and regulations, and (c) to have adequate insurance coverage.

While the rule may change in the future, at present cooperatives may have liability under Labor Law §241 for injuries to workers engaged in apartment alterations, but condominiums do not.

Although the Guryev decision is favorable for condominiums, it should be viewed with caution. Its net effect is to deprive an injured construction worker of any remedy (other than the limited funds available under the Workers Compensation Law). For this reason, it would not be surprising to see future efforts to undermine this decision, including legislative steps to address the matter.

So, after all of that, how should a condominium deal with unit owner alterations? While technically unit owner alterations of a condo are exempt from New York Labor we suggest using best practices and require labor law coverage anyways. There is no reason to put the unit owner, the building and the property manager in a position of defending and paying out a claim when it could have been transferred to the contractor had they had proper insurance.

Derek Oberman

President – The Oberman Companies

What is Cyber Insurance?

Cybersecurity insurance primarily covers breach events where personal identifying information (PII) is lost, disclosed or stolen.

Examples of PII include:

• Social Security numbers
• Credit Card information
• Account numbers
• Driver’s License numbers
• Healthcare data

In Europe this is called Personal Data. Regardless of where you hail from though, the definition of a data breach is pretty universal. Even the smallest incident, like accidentally disclosing a single customer record to the wrong party, qualifies as a personal data breach. And while there is a requirement to report breaches to the appropriate authorities, not every incident rises to the level of reporting. Cybersecurity insurance is still relatively new, so in many ways it’s still evolving.

Generally, cyber insurance covers legal fees and expenses associated with a breach, in addition to:

• Assisting with customer notifications following an incident
• Working to restore the personal identities of affected customers
• Recovering data that was compromised during the incident
• Repairing damaged computer systems and networks
• Many insurance policies will also offer affected customers credit monitoring services as well, which can help to rebuild your company or organization’s reputation following a security incident.

CYBER LIABILITY EXPOSURES FOR COMMUNITY ASSOCIATIONS CAN COME FROM:

• A computer malfunction accidentally distributing an association’s confidential information in a mass email or on printed material, or posts of sensitive data on a website.
• An email communication discussing a member’s medical condition inadvertently being sent to all owners rather than to board members only.
• A cybercriminal hacking the association’s computer system and gaining access to the association’s bank accounts.
• An association employee’s or board member’s cell phone, laptop or USB flash drive being stolen, containing sensitive member and board executive session information.

A careful review of additional insured endorsements is essential to protect those looking for coverage as additional insured.

If someone is told that they just need to be named as an additional insured to protect themselves in a construction project, they may need more information. Does the person want to be an additional insured for ongoing or completed operations? Do they have a written contract agreement? Do they want coverage from subcontractors?

The most common additional insured endorsement for contractors is the CG 20 10.

The CG 20 10 changed significantly after the November 1985 edition. In the November 1985 edition – called the CG 20 10 11 85 – the entity being added as an additional insured was only an insured “with respect to liability arising out of ‘your work.’” The “your work” refers to the work of the named insured – that is, the contractor. “Your work” includes the contractor’s ongoing operations and completed operations.

After 1985, the entity being added as an additional insured using the CG 20 10 was only an insured “with respect to liability … caused … by your ongoing operations.” “Ongoing operations” does not include completed operations. Therefore, the change from “your work” in the CG 20 10 11 85 to “ongoing operations” in later versions effectively removed completed operations coverage for the additional insured.

Sample Ongoing Operations Occurrence

To understand the effect of this change, imagine a property owner hiring a contractor to build a brick wall. While building the wall, the contractor drops a load of bricks on top of a line of cars. This causes property damage arising out of the contractor’s ongoing operations. The car owners sue the property owner.

If the property owner was named as an additional insured on the contractor’s CGL policy using CG 20 10 11 85, the property owner should be covered. This is because the CG 20 10 11 85 provides coverage for liability arising out of “your [the named insured/contractor’s] work,” and “your work” includes both the named insured’s ongoing and completed operations. If the property owner was named as an additional insured using the CG 20 10 after 1985, the property owner would also be covered as an additional insured on the contractor’s policy because the CG 20 10 after 1985 provides coverage for ongoing operations, and this was an ongoing operations exposure.

Sample Completed Operations Occurrence

Two months after the contractor finishes the wall, the wall falls on a line of cars. This is property damage out of the contractor’s completed operations. Once again, the car owners sue the property owner.

If the property owner was named as an additional insured using the CG 20 10 11 85, the property owner would have coverage for the completed operations exposure as “your work.” If the property owner was named as an additional insured using the CG 20 10 with an edition date after 1985, the property owner would not have coverage for the completed operations exposure under the contractor’s CGL policy. The CG 20 10 after 1985 does not provide coverage to the additional insured for completed operations. It only provides coverage for ongoing operations, and this was a completed operations exposure.

Additional Insured Endorsement CG 20 37: Completed Operations

To address the CG 20 10’s gap in completed operations coverage after 1985, the Insurance Service Office (ISO) created CG 20 37 Additional Insured – Owners, Lessees or Contractors – Completed Operations. As the name implies, this endorsement provides coverage to the additional insured for completed operations. It does not provide coverage for ongoing operations.

Using our wall example, if the contractor named the property owner as an additional insured using CG 20 37 (Completed Operations), there would be no coverage for the sample ongoing operations occurrence. There would only be coverage for completed operations exposures. The CG 20 37 is not necessary if a business is able to get the CG 20 10 11 85 because the CG 20 10 11 85 provides coverage for “your work,” and “your work” includes both the ongoing operations of the current CG 20 10 and the completed operations of the current CG 20 37.

Blanket Additional Insured Endorsements

“Blanket” – also called “automatic” – additional insured endorsements are endorsements that the insurance company provides to automatically add as additional insureds, those individuals or entities 1) for whom the named insured is performing operations, and 2) with whom the named insured has agreed in writing to name as an additional insured. A positive feature of the blanket endorsement is insurance agencies can often send out these endorsements without requesting permission from the insurance carriers. This often makes the blanket endorsements quicker to process. A negative feature is the written contract requirement.

Blanket Additional Insured Endorsement CG 20 33 Additional Insured–Owners, Lessees or Contractors–Automatic Status When Required in Construction Agreement with You

The blanket additional insured that most resembles the CG 20 10 is the CG 20 33. A significant difference between the CG 20 10 and CG 20 33, is CG 20 33’s requirement that there must be a written contract or agreement between the additional insured and the named insured. As a way to explain the significance of the written contract requirement, imagine a custom home building project. For this project there is an owner, a general contractor and 15 subcontractors.

General Contractor signs a written contract to build a house for owner. The contract requires the general contractor to have a CGL policy that names the owner as an additional insured. The contract also requires all subcontractors to have a CGL policy that names the owner as an additional insured.

The general contractor hires 15 subcontractors to help with the project. The general contractor and each subcontractor sign a written contract. The contract requires each subcontractor to name general contractor and owner as additional insureds on the subcontractors’ CGL policies. Each subcontractor sends the owner an endorsement showing the owner is an additional insureds on the subcontractors’ CGL policies using blanket CG 20 33.

The problem with this scenario is that there is no written contract between the owner and the subcontractors. The CG 20 33 requires a written contract between the named insured and the additional insured.

Imagine that there is a massive claim at the job site and the owner is sued. The claim involves the work of the 15 subcontractors. The owner thinks he or she is an additional insured with direct rights to the 15 subcontractor CGL policies. What the owner really has are 15 pieces of paper from 15 subcontractors saying owner is named as an additional insured using CG 20 33.

The CG 20 33 required a written contract between the additional insured and the named insured. There was no written contract between the owner and subcontractors.

One way to avoid the owner’s situation would have been for the owner to be named as an additional insured using CG 20 10. The CG 20 10 does not require a written contract between the named insured and additional insured. A second solution would have been for the owner to enter a written contract with each subcontractor. A third option would have been for the owner to be named on the subcontractors’ policies using CG 20 38.

Blanket Additional Insured Endorsement CG 20 38 Additional Insured–Owners, Lessees or Contractors–AUTOMATIC STATUS FOR OTHER PARTIES WHEN REQUIRED IN WRITTEN CONSTRUCTION AGREEMENT

The primary distinction between the CG 20 33 and the CG 20 38 is that the CG 20 38 provides coverage for upstream parties. Upstream parties are the entities or individuals above the level where an entity is contracting. Whereas the CG 20 33 only provides additional insured status where there is a direct written contract, the CG 20 38 extends coverage to “any other person or organization you are required to add as an additional insured under the contract or agreement.”

Using our custom home example, the subcontractors signed a contract with the general contractor saying they would name the general contractor and owner as additional insureds, but the subcontractors did not sign a contract with the owner. There was no coverage for the owner under the subcontractors’ policies when they used the CG 20 33 because the CG 20 33 requires a written contract between the named insured and the additional insured. If the subcontractors used the CG 20 38, the owner would have additional insured status because the owner is a “person or organization [the named insured is] required” to add as an additional insured under the contract with the general contractor.

Call or Email The Oberman Companies

  914-694-8550

Doberman@oberman.com