The issue generally arises when a contractor is hired for a renovation or construction project in a building and one of the contractor’s employees gets injured or accidentally injures someone else while working on the job. He can put in a claim for Workers’ Compensation, but he may also try to sue the property owner of the building he was working in, if his injuries were due to negligence on the part of building maintenance. The property owner will defend himself by claiming that he is also covered as an additionally insured party under the contractor’s insurance policy.
The scenario is so common that many insurance companies get ahead of this situation by specifically putting an exclusion into the contractor’s policy, stating that the building owner or another 3rd party would not be covered in such an event.
If contractors want to get rid of this exclusion in their policies, it will cost them plenty. For a large company, this might not matter that much, but for a small contractor who pays around $2,000 a year in insurance, to have to pay an additional $40,000 is simply cost prohibitive.
What this means, in reality, is that the small contractor will not be able to afford to get rid of the exclusion. Also many buildings and worksites now have policies in place, wherein they insist on viewing a contractor’s insurance policies upfront, and if the exclusion is in the policy, they will not hire that contractor. These small contractors are not getting as much work because of this, and some may have trouble maintaining their businesses.
This is a real frustration for many contractors in New York, and other than changing the existing laws, there seems to be no quick fix to the problem. This situation is, at least, a good example of why, if you own a small business, you should meet with an experienced insurance professional before deciding which coverage and exactly how much of it you need.