As most experienced contractors, owners, and lawyers know, making sure that you have a signed contract before you start work is important. Even in today’s world, it’s not unusual to see even multimillion dollar contracts that are not fully executed. Often, this remains unnoticed until a dispute arises. While it is sometimes correctable, a small issue like an unsigned contract, change order, or subcontract can lead to large costs that could otherwise be avoided. The costs come from uncovered claims or simply the additional costs of correcting the error later.
A recent decision by the New Hampshire Supreme court, related to insurance coverage for an injury that occurred five years after a project was finished, highlights this issue.
The Case: Cincinnati Specialty Underwriters Insurance Co. v. Best Way Homes, Inc.
In Cincinnati Specialty Underwriters, a plumber was injured in 2017 when a staircase—built in 2012 by a subcontractor as part of a home renovation by Best Way Homes—collapsed. At the time of the accident, Best Way was insured under a commercial general liability (CGL) policy that required written contracts with subcontractors as a condition for coverage. Because Best Way never obtained a signed subcontract, the insurer argued it had no duty to defend or indemnify Best Way for the negligent work of the subcontractor. The New Hampshire Supreme Court agreed, holding that:
- The tense of the coverage exclusion language in the policy did not preclude application of the provision for work the subcontractor performed before the policy became effective;
- The plumber’s injuries “arose from” subcontractor’s allegedly negligent construction of the staircase regardless of additional claims as to the general contractor’s negligence; and
- The insurer was not required to show that the general contractor’s failure to execute a written contract with subcontractor was prejudicial. The court further held that the requirement to show prejudice to the insurer, for coverage exclusion provisions in the insurance policy, only applied to notice provisions.
The New Hampshire Supreme Court affirmed summary judgment for the insurer, leaving Best Way without coverage for the claim and incurring attorney fees defending a case that it would otherwise have had coverage for under the policy.
The takeaway for owners and contractors
It is crucial for any party to a contract to confirm they have fully executed agreements, and certificates of insurance, prior to starting work on a project. While it is never someone’s intent to create a problem at the start of a project, things can go wrong, and the consequences of a missing signature can be severe. In general, it is also smart to proceed with caution if another party cannot quickly get a signed document back to you when you send a follow-up on getting a fully executed agreement.
Lastly, owners and contractors should implement simple controls—such as creating a list of key documents that must be complete and in the job file before work starts—as these are important tools to keep small problems from becoming costly ones.
Bernstein Shur’s Construction Group helps developers, contractors, and construction professionals manage risk and keep projects on track at every stage of the project lifecycle. The group provides sophisticated legal solutions spanning contract negotiation, project administration, dispute avoidance, and litigation, drawing on deep experience in the construction industry. Charles M. Wallen is a litigation and construction attorney who focuses on construction-related disputes, insurance coverage matters, and contract enforcement, helping clients navigate complex challenges with a practical, strategic approach. He can be reached at [email protected].