Contracts don’t always have to be complicated, but one should be present, and it should at least cover the basics. Otherwise, a simple bid sheet or cost proposal could become the construction contract when the parties treat it that way. Sometimes, that won’t cause issues. But when something unexpected happens, like an injury on site, it can create chaos and lead to legal costs trying to determine the relationships between the parties. It’s cheaper to nip those issues in the bud at the beginning of a project with a proper agreement.
A recent New York appellate decision illustrates what can go wrong.
Here, a one-page cost sheet failed to clarify the contractor’s role and included a $40,000 “insurance requirement,” but it didn’t explain what coverage that referred to. The ambiguity left factual questions about the parties’ obligations, over contractual indemnification, and for insurance coverage.
An Injury on Site
In Torres v. Tinton Realty Group LLC, the owner hired Supreme Builders to perform excavation, foundation, and superstructure work for a new building in the Bronx. Supreme Builders prepared a cost sheet on its letterhead dated Sept. 24, 2019, which included the line about insurance. Shortly thereafter, the parties decided to proceed, and the contractor began work. After the project began, a worker who was using stilts to apply compound to the walls and ceiling slipped on plastic floor covering, injuring him. The worker sued the owner to recover damages for the injuries. The owner then asserted crossclaims against Supreme Builders, claiming that, as the GC, Supreme or its insurer was on the hook for the damages.
The contractor rebuffed the idea that it was serving as the project’s general contractor and moved for summary judgment. Supreme claimed that, because it wasn’t actually the general contractor, it therefore wasn’t a proper defendant under New York’s Labor Law. Supreme sought dismissal of the action and the owner’s crossclaims.
The lower court denied the relevant parts of the motion, and the contractor then appealed the order.
Project Records and Circumstances Clarified the Contractor’s Role
The cost sheet didn’t explicitly designate Supreme Builders as the project’s general contractor. But other project records supported that idea. For one, the owner’s principal testified that Supreme Builders coordinated trade contractors and hired a site safety contractor, work the GC generally does. Further, construction signage identified Supreme Builders as the general contractor, and Department of Buildings records connected the company to project permits and safety violations.
The appellate court found that the evidence created a factual question about whether Supreme Builders served as the general contractor. It also rejected the contractor’s argument that the parol evidence rule barred consideration of evidence outside the cost sheet. Whether that document governed the parties’ entire project relationship remained disputed.
The court didn’t decide that Supreme Builders was the general contractor. It decided that the available evidence prevented that question from being resolved on summary judgment.
The Insurance Line Item Created More Questions
The cost sheet included a $40,000 insurance requirement but didn’t explain what coverage Supreme Builders had to provide. The owner’s principal testified that the line required the contractor to obtain insurance naming the owner as an additional insured.
The court found that the cost sheet and testimony created open factual questions about whether the parties intended Supreme Builders to contractually indemnify the owner and whether the contractor breached an insurance-procurement obligation.
The ruling was narrow. The court didn’t hold that the $40,000 line conclusively created indemnification or additional insured obligations. It effectively held that the issue was an open question that the parties would need to further argue.
The surviving risk-transfer claims will therefore depend on the parties’ agreement and evidence of their intent.
Key Takeaways: Use an Agreement That Reflects the Work
A bulleted list of topics and dollar amounts might be enough to cover some basic elements of the agreement, but it won’t be enough if anything goes wrong on the project. When it comes to insurance, the contract should at least identify:
- What kinds of insurance policies must be present
- What limits apply to each
- The claims or events that trigger obligations
- Indemnification considerations
Owners shouldn’t have to rely on testimony after an accident to establish essential insurance or indemnification terms. Contractors also shouldn’t assume that a proposal or cost breakdown will be read in isolation when their project conduct suggests a broader role.
Before work begins, the parties should align the signed agreement with their expected obligations. They should also confirm that the contract reflects the actual responsibilities, including any coordination, permitting, or site safety duties.
As always, it’s a good idea to consult a construction lawyer and insurance professional to get a better understanding of what’s being required.
Understand Additional Insured Coverage
Clear additional insured requirements can help the contract and insurance program work together. Learn how this coverage operates and how AIA Contract Documents (ACD) address additional insured obligations.
