CONTRACTOR LICENSE & INSURANCE

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

1. Workers Compensation. Workers' compensation policies protect injured workers.
2. Commercial General Liability (CGL). CGL policies protect against lawsuits that may result from bodily injury or property damage arising from the contractor's work. The policy should include an endorsement naming the association as "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).
3. Completed Operations. This covers any damages that may arise after the work is completed. For example, if a new roof were to leak at some point after it was completed and damaged the common areas and an owner's unit, a claim can be tendered to the roofer's insurance company.
4. 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" (pictured below left) 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 of Insurance, the "DEC" page outlines who is insured, what is insured, and the type of coverage. Unlike a certificate, It provides the term of the policy, 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 summary of insurance. 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 association's insurance Section 5300(b)(9) allows and 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, make sure the information is sent directly from the insurance carrier. If it comes from the vendor and it is faxed only, vendors have been known to tamper with the declarations page by whiting out expiration dates and/or adding the association as "additionally insured" when in fact the coverage has already expired or the vendor is the only one insured. 

ADDITIONAL INSURED
"Additional Insured" means the association is added to and protected by the insurance policy of another party (frequently a vendor hired by the association).

Endorsement. Being added as an additional insured to a vendor's policy is normally 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 work is being performed by the vendor.
• 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 may be on a separate form.

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

UNLICENSED & UNINSURED VENDORS

Unlicensed & Uninsured Vendors. By law, if a board hires an unlicensed contractor, the association automatically becomes the employer of the injured worker. (State Compensation Ins. Fund v. Workers' Comp. Appeals Board (1985) 40 Cal.3d 5.) This is true even if the contractor misrepresented the fact 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 employees of the contractor. 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." This means that any unpaid workers will be considered employees of the association and the association will be liable for paying those workers, even it the association already paid the contractor. (Sanders Construction v. Cerda (2009) 175 Cal.App.4th 430.)

Licensed but Uninsured Vendors. Typically, so long as the vendor is licensed, the injured worker will remain the employee of the vendor, and not the association. Accordingly, the injured worker would have the option of proceeding against the vendor either civilly or for workers' compensation. In the event that 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, then the injured worker can pursue the association both civilly and under workers' compensation.

CONTRACTOR LICENSES
Anyone who contracts to perform work that is 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 issues affecting community associations, subscribe to the Davis-Stirling Newsletter.