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Builders and Remodelers:

Does that Insurance Certificate your Subcontractor Gave You Really Protect You?

By Steve Snyder, Attorney at Law

That Certificate of Liability Insurance your Subcontractor’s Insurance Company provided you may not cover your Company and the Insurance Company knows it (and they are hoping you don’t!)

I represent a lot of builders and remodelers and they all know that when they are hiring a subcontractor, they need the subcontractor to provide them with a “Certificate of Liability Insurance.” What they often do not know, and the insurance company does, is that the insurance certificate you were provided probably will not protect your company in the event you need to make a claim. Insurance companies do it all the time, and they do it on purpose. And if you don’t know what to look for, you could have a serious problem in the event you need to make a claim…with your subcontractor’s insurance company and with yours as well!

A client of mine in the roofing business had it happen to him and it has cost him tens of thousands in attorney fees and potential liability of close to $200,000.00 to pay for a mishap on the job site that should have been covered by his subcontractor’s insurance company.

The roofing company, we will call them ABC Roofing, signed a contract to put a new roof on a commercial building. ABC then contracted with a subcontractor to do the roof. ABC required the subcontractor to provide a Certificate of Liability Insurance, which they did, with ABC Roofing printed right on the bottom of the certificate under the heading “Certificate Holder.”

Both contractors were not aware that the roof on the building had leaked for years and the substructure was in bad shape. On the first day of work a section of the roof collapsed. Luckily, no one was injured or killed.

The owner of the building made a claim to his insurance company for nearly $200,000 to put a new roof on the building and remodel the inside of the building, claiming the work was necessary because of the damage caused by the roof collapse. Two years later, the Owner’s insurance company filed a suit against ABC to recover the money they paid to the Owner. Its what the insurance industry calls “subrogation.” They also named the Subcontractor in the suit but he was no longer in business.

ABC figured this would not be a problem because he had obtained a Certificate of Liability Insurance from the Subcontractor. However the Subcontractor’s insurance company declined the claim. The reason for their denial? The Certificate of Liability Insurance provided by the Subcontractor’s insurance company named ABC Roofing as a “CERTIFICATE HOLDER.”  What the Certificate did not do was name ABC Roofing as an “additional insured.” Insurance companies do this all the time, hoping the contractor is unaware of the difference between a “certificate holder” and an “additional insured.” And often the contractor is not aware of the difference.

So, after being denied coverage by the subcontractor’s insurer,  ABC went to his own insurance company, who he had been paying insurance premiums to for years. And guess what his insurance company told him? That’s right! They denied the claim because ABC was supposed to be covered by the Subcontractor’s insurance company.

If you want to know how the story ends, give me a call. But more importantly, if you have not talked to a lawyer who specializes in construction law, give me a call. I will be pleased to review all of your contracts and make sure you are protected. You can reach me at (717) 975-7799 or check out my web site at www.steveonyourside.com

Legal Representation of the Residential Construction Industry

LEGAL REPRESENTATION OF THE
RESIDENTIAL CONSTRUCTION INDUSTRY

BUILDING CONTRACTORS AND SUBCONTRACTORS
SHOULD NEVER NOT GET PAID

If you are a Building Contractor, Sub-Contractor, Remodeler or any company involved in performing work or providing building materials for construction on real property, you should “never not get paid.” But it is very important that you do not wait to file. If you miss a deadline, you will not be able to file a mechanics lien, and may lose your opportunity to have a judgment placed on the property. And the judgement is what gets you paid!

Every state has a Mechanics Lien Law and Attorney Snyder can help you in any state where you have a problem getting paid.

Under Pennsylvania’s Mechanic’s Liens Law, (49 P.S. § 1101 et. seq.) contractors, as well as subcontractors and materialmen (building supply companies) who have a direct contractual relationship with the general contractor may file a mechanic’s liens for unpaid work relating to the “erection, construction, alteration or repair of improvements located on real estate, including the provision of materials, fixtures and equipment used therein.” This is not only an issue in connection with major construction jobs; any repair work can result in a lien if not paid on time. An architect or engineer may also file a lien if that design professional, “in addition to the preparation of drawings, specifications and contract documents also superintends or supervises any such erection, construction, alteration or repair” on the property.

Deadline to file in Pennsylvania – The mechanic’s lien is filed in the prothonotary’s office of the Court of Common Pleas in the county in which the property where the construction work was performed is located. All contractors, subcontractors and sub-subcontractors (referred to as the “claimant”) must first serve a Formal Notice of their intention to file a lien on the owner at least 30 days before filing lien claim. The claimant must then file a Lien Claim in the prothonotary’s office within six months of the date of the last work which was performed on the project, and must serve notice of the lien claim on the owner within one month after that. An affidavit of service then must be filed with the court within twenty days after service of the written notice on the owner. After filing the claim and having the Lien recorded, the claimants must enforce by filing a lawsuit within two years of Lien Claim filing.

As a result of these deadlines, a potential claimant cannot wait six months to file, because you must first file the 30 day notice and will then have five months or less from the last day of work on the project to file the mechanics lien claim. And the courts will not cut you any slack, so DO NOT WAIT TO FILE.

Waiver of Mechanics Liens – Unlike many states, Pennsylvania mechanic’s lien law allows a general contractor to waive a subcontractor’s right to a mechanic’s lien in certain circumstances. A subcontractor can waive its right to lien on a residential construction project where the contract between the owner and the general contractor is less than one million dollars. A subcontractor can also waive its right to file a lien on all projects only if the general contractor provides a bond guaranteeing payment to subcontractors.

In addition to the Pennsylvania’s Mechanic’s Lien Law, Pennsylvania also has a Contractor and Subcontractor Payment Act, (73 P.S. § 501 et seq.) pertaining to commercial and multi-family construction contracts which establishes timelines for progress and final payments (if the contract doesn’t have one), and includes interest, penalties and attorney fees for failing to make payments on time.

If you are unsuccessful in having a mechanics lien placed on the property, a contractor or subcontractor can still file suit and get a judgment against the owner of the project, but it will take longer. And with judgments against real property, generally priority goes to the first lien over subsequent liens, so you want to get your lien entered as soon as possible.

As mentioned, the requirements involved in properly drafting, filing, providing notice to the property owner, and in service of the lien are very specific, and if not adhered to, the mechanics lien will not be enforceable. If you have a project where you have not been paid, you should call Steve Snyder immediately to discuss your options. If you are in the construction business and would like to discuss other areas of your business, call Steve today to set up an appointment.

Laura RogersConstruction, Mechanics Lien