In a recent case regarding a homeowner/contractor dispute, the claim was tendered by the contractor to the contractor's insurance carrier. In response to this tender, the adjuster handling the matter stated that large parts (indeed, most) of the claim were excluded from coverage by two specific exclusions to the policy: the "subcontractor" exclusion and the work product exclusion (or "craftsman exclusion").

The "subcontractor" exclusion usually states that a general contractor must meet a number of requirements when dealing with subcontractors, including: (1) there must be a written contract with the subcontractor; which includes a "indemnification/hold harmless" clause in favor of the general contractor; and (2) the subcontractor must be licensed and insured - and name the general contractor as an additional insured. (I will address the work product exclusion in another article.)

With a big hole in the insurance coverage (there was an offer by the insurance carrier to pay the very limited "covered" damages), this case will proceed to litigation. And while insurance counsel will probably be provided, the general contractor may be stuck with paying the lion's share of any damages.

Moral: Be aware of what is and what is not covered by your commercial general liability (CGL) insurance. While contracting with a subcontractor, it is always a good idea that the above requirements are met. But ask your broker if they are mandatory in your policy!

Contractors State License Board Enforcement

in the Bay Area

As I have mentioned in previous articles, the Contractors State License Board is cracking down. But this time, it is a good use of limited resources.

In April, the Board held a two-day sting operation in Hayward, California. The Board's Statewide Investigative Fraud Team (S.W.I.F.T.) and the Alameda County District Attorney's Office conducted a joint undercover operation. S.W.I.F.T. was formed to crack down on unlicensed contractors who avoid state and federal tax, employment, and licensing laws. (It has made presentations to NARI in the past.)

These sting operations are targeted at unlicensed contractors, with an emphasis on repeat offenders and those who do not carry workers' compensation insurance for employees. Other operations have been held state wide in Sacramento, Santa Clara, Sonoma, Los Angeles, Orange, and San Bernardino counties.

Investigators posed as homeowners seeking bids for construction work from suspected unlicensed contractors. The suspected violators were identified through online and local advertisements. In total, 15 violators were arrested for contracting without a license and/or illegal advertisement - all misdemeanor charges. Violators can face a maximum of six months in jail and/or fines up to $5,000 for first offenses. A second violation carries a mandatory ninety day jail sentence in addition to fines up to $5,000.

Good work, guys! More of the same please. To report unlicensed activity, please contact S.W.I.F.T. at 916-255-2924 or downloading a S.W.I.F.T. Lead Referral form from the CSLB website. 　

Previous Articles. For my previous articles, please visit SFBA NARI's website and click on the link "In the News/Newsletter" under "For the Trade." They are also available on my website under "Articles." As always, my discussions are summary in nature and intended to simply give you a heads up on various topics and issues.

Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com . Feel free to contact Bryant by email at bhbatty@pacbell.net .