CONTRACTOR LICENSE & INSURANCE

Contractor License & Insurance Required

All contractors/vendors (plumbing, electrical, roofing, painting, street paving, landscaping, etc.) who work in or on the association's common areas must be licensed and insured. 

• Workers Compensation. Workers' compensation policies protect injured workers.
   
• Commercial General Liability (CGL). CGL policies protect against lawsuits resulting from bodily injury or property damage arising from the contractor's work. The policy should include an endorsement naming the association "Additional Insured," which provides additional protection to the association. However, such protections can be voided if the policy excludes coverage for multi-family developments (see "Exclusions" below).
   
• Completed Operations. This covers any damages that may arise after the work is completed. For example, if a new roof were to leak after it was finished and damaged the common areas and an owner's unit, a claim can be tendered to the roofer's insurance company.
   
• Errors & Omissions. Architects and engineers who prepare specifications for contractors or who consult with the association should carry E&O professional liability insurance. E&O insurance covers mistakes made by professionals.

Condominium Exclusion. The most important item to look for when reviewing a vendor's insurance is whether it has a "Multi-Family" or "Multi-Unit" exclusion in the insurance policy. If they do, they are essentially UNINSURED if they perform any work for a condominium association. If that is the case, DO NOT hire the vendor. Because exclusions are typically not listed on the certificate of insurance given to the association, boards, and managers must request a complete copy of the contractor’s CGL policy and have the association's insurance broker or attorney review it.

Certificate of Insurance

A "Certificate of Insurance" from an insurance company is a one-page document that provides evidence of insurance coverage. It contains the following information:

• The insured's name (who the carrier is insuring)
• The amount of insurance
• What is covered by the policy
• Names of any additionally insured parties

Declarations Page. Unlike a certificate of insurance, a "Declaration Page" (below right) is part of the insurance policy. Like a Certificate, the "DEC" page outlines who is insured, what is insured, and the type of coverage. Unlike a certificate, it provides the policy term, how the claim will be paid, and the premiums charged.

Exclusions. Neither page describes the exclusions. For example, if work for condominium associations is excluded, that would not appear on this one-page insurance summary. Accordingly, a list of all exclusions should be requested from the vendor's insurance agent.

Annual Disclosure Requirement. Civil Code § 5300 requires associations to send, with the annual budget, a summary of the association's insurance. Section 5300(b)(9) allows an association to meet that obligation by sending the declaration page and not a certificate of insurance. The language states:

For each policy, the summary shall include the name of the insurer, the type of insurance, the policy limit, and the amount of the deductible, if any. To the extent that any of the required information is specified in the insurance policy declaration page, the association may meet its obligation to disclose that information by making copies of that page and distributing it with the annual budget report.

CAUTION: When you request proof of insurance from a vendor, ensure the information is sent directly from the insurance carrier. If it comes from the vendor and it is faxed or emailed only, vendors have been known to tamper with the declarations page by whitening out expiration dates and adding the association as "additionally insured" when, in fact, the coverage has already expired or, the vendor is the only one insured. 

Additional Insured Endorsement

"Additional Insured" means the association is added to and protected by another party's insurance policy (frequently a vendor hired by the association). Adding an additional insured to a vendor's policy is usually done as an endorsement on their policy. It makes the association a first-party claimant in the event the association is sued because of some act or omission by the contractor/vendor. In other words, the association can demand that the vendor's insurance carrier defend the association. The additional insured endorsements should include both:

• Ongoing Operations. This protects the association from claims made while the vendor is performing work.
   
• Completed Operations. This endorsement covers claims made after the work has been completed. The endorsement may be on the same form as ongoing operations or on a separate form.

As an additional insured party, the association will receive notice if the policy is canceled or not renewed for any reason.

Unlicensed & Uninsured Vendors

By law, if a board hires an unlicensed contractor, the association automatically becomes the injured worker's employer. (State Compensation Ins. Fund v. Workers' Comp. Appeals Board (1985) 40 Cal.3d 5.) This is true even if the contractor misrepresented that he was licensed and insured. Without workers' compensation insurance, there are no limits on the damages that may be claimed by an injured employee, including claims for pain and suffering. The association could be liable, and the membership could face large special assessments to pay the damages. With insurance, the employee's claims are limited, and the loss is paid by insurance.

In Heiman v. Workers Comp Appeals Board (2007), the Montana Villas Homeowners Association hired Pegasus Properties as its management company. Pegasus hired Hruby, a contractor, to install rain gutters for the association. Hruby's employee was careless, and a rain gutter touched a high-voltage electrical wire, severely injuring the employee. Since Hruby was unlicensed and uninsured, the court concluded that both the association and its management company were the employers of the injured worker and both were liable to pay him workers' compensation benefits.

Unpaid Wages. If associations hire unlicensed contractors, they could be liable for wage and hour claims filed by the contractors' employees. In a 2009 case involving a general contractor and its subcontractors, associations who hire unlicensed contractors can be deemed a "general contractor" and the unlicensed contractors as "subcontractors." It means that any unpaid workers will be considered employees of the association, and the association will be liable for paying those workers, even if the association has already paid the contractor. (Sanders Construction v. Cerda (2009) 175 Cal.App.4th 430.)

Licensed but Uninsured Vendors. Typically, as long as the vendor is licensed, the injured worker will remain the vendor's employee, not the association. Accordingly, the injured worker could proceed against the vendor either civilly or for workers' compensation. If there was a finding of dual employment, then the association becomes liable. So long as the association is insured for workers' compensation, the injured worker's remedy would be limited to workers' compensation. If the association is not insured, the injured worker can pursue the association civilly and under workers' compensation.

Contractor Licenses

Anyone who contracts to perform work valued at $500 or more for materials and labor must hold a current, valid license in the specialty for which he/she is contracting. Section 7030.5 of the California Business and Professions Code requires that licensed contractors include their license number in “(a) all construction contracts; (b) subcontracts and calls for bid; and (c) all forms advertising, as prescribed by the register of contractors, used by such person.” A contractor's license can be verified through the Contractor License Board.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with community association issues, subscribe to the Davis-Stirling Newsletter.