Most contractors have heard on more than one occasion how important it is to execute a signed contract before starting work on a project. Failure to do so can result in a variety of contract claims and insurance coverage gaps.
One unfortunate contractor learned that lesson the hard way, reports Contractors Risk Advisors. In Zurich Am. Ins. Co. v. Illinois Nat’l Ins. Co., No. 105533/09, 2010 N.Y. Misc. LEXIS 6332 (N.Y. Sup. Ct. N.Y. Cty., Dec. 23, 2010), the Supreme Court of New York ruled that an excavation subcontractor who started work on a project before the contract was signed did not meet the definition of an “insured” under the wrap-up policy covering the project with respect to losses that occurred prior to enrollment.
The OCIP policy defined “named insured” to include “[a]ll contractors and/or subcontractors and/or subconsultants for whom the owner or the owner’s agents are responsible to arrange insurance to the extent of their respective rights and interests.’
However, it further defined “contractor” to include parties “who have executed a written agreement pertaining to said Contractors’ performance of work at the Project Site, have been enrolled in the insurance program, and who perform operations at the Project site in connection with the Project.’
The subcontractor (and its insurer, Zurich) argued that it was not unusual for construction firms to begin work while the paperwork is in process, and that its delay in getting the OCIP paperwork completed should not defeat the parties’ intent that it would be covered by the wrap-up for its work on the project. The court rejected that argument, holding that the subcontractor’s coverage under the wrap-up policy did not begin until the subcontract was signed and enrollment in the wrap-up was completed. There was, therefore, no coverage for pre-enrollment losses.
While this case was decided in New York, it serves as a reminder for contractors everywhere of the importance of getting the paperwork completed before bringing workers onto a project.
Whether your construction firm is working on a wrap up or not, it’s important to always make sure the ink has dried on the contract prior to sending your employees and equipment to the job site. This lawsuit will be precedent setting, and in these trying economic times, it would be foolhardy to have an uninsured claim because of haste to get on a job site. Read More.