To Our Clients, Co-Counsel and Friends:
We write to provide you with an important update relating to recent efforts by various insurance carriers to exclude certain coverage most critical to contractors and property owners in New York. Our firm is presently litigating various issues arising out of these very circumstances.
Contractors rely on their General Liability Insurance (“GL”) to guard themselves and their additional insured parties (usually the property owner and, where applicable, a general contractor and/or construction manager) against claims of property damage and personal injury. Further, the Workers’ Compensation Law and the statutorily-prescribed Workers’ Compensation Insurance protect the contracting firm from suit brought by an injured employee and compensate the employee for the injury. However, the practical reality is that an employee of the contracting firm who is injured on a jobsite might sue the property owner, i.e., an additional insured on the contractor’s GL policy. The owner would then normally make a claim against the GL policy and should be covered for the claims of the employee thereby receiving the benefits of defense and indemnification as
promised by the contractor’s GL carrier.
In recent years, however, carriers have begun to add exclusionary endorsements to policies issued to contractors who, at a minimum, perform work in New York. These exclusionary endorsements, referred to by some carriers as “Employee Liability Exclusion Endorsements,” remove from the otherwise applicable GL coverage any claims arising out of an injury to the employee of the primary insured party, i.e., the contractor. By proxy, therefore, the contractor’s additional insured party, i.e., the property owner, is not covered for any claims arising out of an injury to an employee of the contractor.
As such, when the property owner is sued by the injured employee, its claim against the contractor’s GL policy is denied and the owner is forced to make a claim under its own policy. The property owner’s insurance carrier then exercises its right of subrogation and brings a third-party action against the contractor (though the employee cannot sue the contractor directly, the Workers’ Compensation Law does not prohibit this apparent end-around).
In light of the foregoing, it is absolutely critical for all contractors and property owners to verify the existence of appropriate coverage. Regrettably, we have seen cases where a carrier has amended the language of a contractor’s GL policy without proper notice.
If you have any questions regarding this Update or a particular insurance coverage issue, please do not hesitate to contact us.