Whether at a condominium or homeowners’ association, managing contractors and vendors is an essential element of operating the community, whether those companies are working directly for the association, or doing work inside a lot or unit. You may have had your attorney advise you to not only get a certificate of insurance from the company, but to also have the association listed as an “additional insured” on their liability policy. What does being an “additional insured” actually do for your association, and should you consider it a requirement before any vendor works at the property?
"ADDITIONAL INSURED" MISCONCEPTIONS
There are many misconceptions about the importance of the “additional insured” designation. Some people think that the association is not protected unless they are an additional insured, but that is not true. A vendor’s liability insurance policy will have specific coverages and exclusions, and whether or not the association can make a claim against the policy will depend on that coverage. If an air conditioning vendor damages a condominium roof, and the liability policy does not cover roof damage, then insurance is not going to reimburse the association for the damage, whether or not the association is listed as an additional insured. As an analogy, consider what happens if you were to get into a car accident. If the driver of the other car is responsible, you can make a claim against his or her insurance—and that does not require you to be an additional insured under their policy. This is exactly the same in the case of contractor and vendor liability policies.
ADDITIONAL INSURED ADVANTAGES
Being listed as an additional insured, however, does have two important advantages.
1. When your association is listed as an additional insured, the insurance company is obligated to inform you if the policy is cancelled for non-payment of a premium. For example, assume that the association hires an electrical contractor, and they provide the association with a certificate of insurance—but the project is not scheduled to begin for a month. In that time period, the contractor could fail to pay its premium and have its insurance cancelled, and, unless the association requests an updated certificate at the time the project commences, it would have no idea that there is in fact no insurance protecting against damages caused by the contractor. But, if the association was listed as an additional insured, it would receive notice of the cancellation, and it could either insist that the contractor secure a new policy, or find a new contractor.
2. If an association is listed as an additional insured, it may take advantage of any duty to defend against lawsuits that might be available to the primary insured, but would not be available to other persons making a claim against the policy. For example, if we again assume that an air conditioning contractor damages a condominium roof, there is a possibility that water will leak into the unit below—and if that happens, the unit owner will likely sue the association. Ordinarily, the association would have no option but to report this lawsuit to its own liability carrier. But, if it is listed on the contractor’s insurance as an additional insured, it may have the right to demand that the contractor’s insurance company pay the costs to defend against the lawsuit, and to be responsible for any damages that may result—which will save the association money in future insurance premiums.
Because of these two factors, we always recommend that our clients ask to be listed on any vendor or contractor insurance policy as an additional insured, at least when possible. If you have any questions about your insurance coverage and your association’s liability in the event a vendor or contractor damages the property, make sure to contact your attorney as soon as possible.
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