The HOA Board Quarterly Winter 2019 Issue #20 | Page 9

Use of Unlicensed and/or Uninsured Contractors by Michael Berg, CIRMS, CMCA, MBA - Berg Insurance Agency Recently I was asked to address an issue at one of our communities. The board of directors for this community has decided that, to save money on property maintenance projects, it will enter into an agreement with an unlicensed and uninsured contractor. I was asked to address the insurance aspects and exposure of this decision. Please keep in mind that I am not an attorney, so nothing here is intended as a legal opinion or as legal expertise. For that, I suggest you contact a professional association legal counselor. It is not advised that an association use the services of an unlicensed and uninsured vendor. By doing so, the association assumes the liability of the vendor’s work. The association is not a painter, landscaper or other similar contracted provider. But, if the provider causes damage to property, either the association’s or an individual’s, the association becomes responsible for that damage. The possibility is strong that the association would have issues recovering damage repair costs through the association’s liability insurance carrier because that carrier is not insuring this type of business exposure. Most certainly, if there was coverage provided, the carrier would require a change of practice before continuing to insure the community. If the provider has employees, and one is injured while working on association property, it is likely that the association would be deemed the employer and be responsible for the individual’s medical expenses. Now, the association may have a worker’s compensation policy in place. But that policy is intended to be a last resort, not first dollar protection. It is rated as such. If, in the course of a loss, it is ultimately determined the association is the employer, then the policy would likely be triggered. But, if the association knowingly exposed the carrier and community to the loss, triggering coverage might be a challenge. The carrier is expecting to provide coverage for the risk that is represented. Misrepresentation of that risk carries with it the potential for coverage to be denied. To protect the liability of the community, the board needs to make prudent business decisions, at the advice of experts, in good faith and in the best interest of the membership. The use of licensed and insured contractors may come at a higher cost. But that cost transfers the liability of workmanship to the provider of the work. This would be considered prudent business practice. The choice to use an unlicensed and uninsured contractor may not be in the best interest of the community overall because of the exposure to loss for which the association has no control. Contributed by Michael Berg President/CEO, Berg Insurance Agency 949.830.4590 x216 [email protected] or visit them at www.berginsurance.com Winter 2019 | Issue #20 | The HOA Board Quarterly | 9