Contractual Liability, Action Over & the C-105.2: The Workers' Comp Traps in Your Contracts

A construction contract does two things most people never separate. It makes you assume someone else's liability, and it makes you prove your own insurance. Both sound like paperwork. Both are where jobs stop, claims land on the wrong party, and a contractor who did everything else right discovers the coverage they paid for isn't there.

Three pieces sit at the center of this: contractual liability, the action over exclusion, and — in New York — Form C-105.2. They're usually treated separately. They shouldn't be. A sub can carry workers' comp, employers liability, and general liability, sign a routine subcontract, hand over a certificate, and still have a gap wide enough to end the business. Here's how the three connect.

Two obligations hiding in every contract

Read past the scope and the price and almost every commercial or construction contract asks for the same two things.

First, an indemnification and hold-harmless clause: you agree to assume liability for claims arising out of your work — often including claims caused partly by the party you're indemnifying. Second, an insurance-requirements section: you must carry specific coverages at specific limits, name the other party as additional insured, and furnish proof before you set foot on site.

The first obligation is contractual liability. The second is proof of coverage. They're linked: the contract makes you promise to stand behind risk, then makes you prove you've got the insurance to actually do it.

Contractual liability, precisely

"Contractual liability" has a specific meaning in a general liability policy. A GL form excludes liability you assume under a contract — then gives much of it back for what it calls an "insured contract." A typical subcontract's indemnity agreement qualifies, so your GL's contractual-liability coverage responds to the liability you assumed when you signed.

That's the mechanism behind hold-harmless clauses working at all. When it's in place and the exclusions don't bite, the indemnity you promised is backed by insurance. When it isn't — or when an exclusion quietly removes it — you've made a promise with nothing behind it. For how the additional-insured side of the same requirement works, see certificate of insurance vs. additional insured.

Workers' comp is the floor — but "exclusive remedy" isn't the wall you think

Every employer with employees needs workers' compensation. It pays an injured worker's medical bills and lost wages regardless of fault, and in exchange it's the worker's exclusive remedy against their own employer — they can't also sue the employer in tort. That exclusive-remedy bar is what most contractors assume protects them once comp is in force.

It doesn't, entirely. Exclusive remedy stops the employee from suing *their own employer*. It does nothing to stop them from suing *everyone else*.

The action over claim

Here is the sequence that catches contractors. A subcontractor's employee is hurt on a job site. They collect workers' comp from their employer — the sub — and under exclusive remedy, that's as far as they can go against the sub. So they sue the parties they *can* reach: the general contractor and the property owner, for failing to provide a safe site.

Now the GC and owner, staring at that lawsuit, reach for the subcontract — the one with the indemnity clause and the additional-insured requirement — and bring the sub right back into the case. The worker couldn't sue their employer directly, but the GC's claim *over* against the employer does it indirectly. That's an action over (also called a third-party-over action). It pierces exclusive remedy through the contract, and the employer who thought comp closed the book is now defending the entire injury.

This is where New York becomes its own category of risk. Under Labor Law §240(1) — the "Scaffold Law" — and §241(6), owners and general contractors carry near-absolute liability for gravity-related injuries on construction sites, with the injured worker's own negligence often no defense. That drives large judgments against GCs and owners, and every one of those judgments becomes an action over aimed back at the sub whose employee was hurt. New York isn't where action over is a footnote; it's where it's the main event.

The action over exclusion — the gap hiding in your GL

Here's the part almost no one reads until it's too late. Many general liability policies — especially construction GL, and especially in New York and New Jersey — carry an action over exclusion.

Under various names (employer's liability exclusion, injury to employees of the insured, "employee injury — action over"), the endorsement removes GL coverage for bodily injury to an employee of the insured — including the liability the insured assumed by contract to indemnify a third party for that injury. Read that again in the sequence above: the action over claim is precisely a third party seeking indemnity from the sub for injury to the sub's own employee. A broad action over exclusion is written to knock out exactly that claim.

So the trap closes like this. The sub carries workers' comp. The comp policy's Part Two — Employers Liability is supposed to cover suits that fall outside Part One, including third-party-over actions — but Employers Liability has its own exclusion for liability *assumed under a contract*, so the contractual indemnity shifts over to the GL as contractual liability. And if the GL carries an action over exclusion, that coverage is removed too. The sub can hold comp, employers liability, *and* general liability, have signed the indemnity in good faith, named the GC as additional insured — and have no coverage when the action over claim arrives. The GC's additional-insured status is worth nothing, because there's nothing left on the policy to extend.

The fix is not exotic, but it has to be deliberate: identify the exclusion before signing, and get it removed or bought back — or confirm you're carrying a form without it — so the indemnity and additional-insured status you're promising are actually backed. This is a line-item review, and it's the single most important thing to check on a construction GL policy going into a contract.

In New York, proof of comp means the C-105.2 — not a certificate

Now the second obligation: proof. A contractor can have perfect coverage and still lose the job over the form it's proven on, because New York does not accept an ACORD certificate as proof of workers' compensation. This surprises people constantly — the ACORD certificate is the universal proof of every *other* coverage, and it's specifically not accepted for New York comp.

What New York's Workers' Compensation Board does accept is one of its own forms:

• C-105.2 — *Certificate of NYS Workers' Compensation Insurance Coverage*, the standard proof for an employer whose coverage is written in the voluntary market;
• U-26.3 — the State Insurance Fund's version of the C-105.2, issued when the policy is with NYSIF;
• SI-12 — for individually self-insured employers;
• GSI-105.2 — for members of a workers' comp group self-insurance program;
• CE-200 — the *Certificate of Attestation of Exemption*, for a business with no employees (or certain out-of-state entities) that isn't required to carry New York comp at all.

A few mechanics matter. The C-105.2 can only be issued by the insurance carrier or its licensed agent — not by an insurance broker on its own — and it names the specific certificate holder (the GC, the owner, or the permit/license-issuing agency) in the box that proves coverage to *them*. It's valid for one year from issuance or until the policy expiration date shown on the form, whichever comes first. And the carrier must notify the certificate holder if the policy is canceled — within 10 days for nonpayment of premium, or 30 days for other reasons — which is exactly why certificate holders insist on the real form instead of a static certificate.

The stakes behind all of this are statutory. A New York employer that operates without required comp faces penalties that can reach $2,000 for every 10-day period it goes uncovered, stop-work orders, and criminal exposure — a misdemeanor for smaller employers, a felony for larger ones. And a general contractor has its own reason to police the paperwork: under the Workers' Compensation Law, a GC can be held liable for comp owed to the employees of an uninsured subcontractor. The C-105.2 isn't bureaucracy for its own sake; it's how a GC confirms it won't inherit your comp obligation.

Where contractors get caught

The failures cluster in a few places:

• Signing the indemnity with an action over exclusion in place — promising to stand behind the GC, with a GL endorsement that removes the coverage for the one claim most likely to come.
• Proving New York comp with an ACORD certificate — a submission that gets bounced, stalling the job while the real C-105.2 is chased down.
• Letting the C-105.2 lapse mid-project — the form expires with the policy term, and a renewal that doesn't re-issue it leaves the GC out of compliance without anyone noticing until an audit or a claim.
• Assuming additional-insured status is coverage — naming the GC means nothing if the underlying policy won't respond.

How to line it up

Before you sign:

1. Read the indemnity and the insurance section together — understand what liability you're assuming and what proof you're promising. 2. Pull your GL for an action over / employee-injury exclusion, and if it's there, get it removed or bought back before the contract is executed. 3. Confirm your workers' comp and employers liability limits meet what the contract requires, and that employers liability isn't sitting at a token limit. 4. Order the correct New York proof — the C-105.2 (or U-26.3 / SI-12 / GSI-105.2), naming the right certificate holder — and file the CE-200 instead only if you genuinely have no employees. 5. Calendar the renewal so the C-105.2 re-issues when the policy renews and never lapses mid-job.

For the broader picture, see our guides on business insurance for contractors, do you need workers' compensation insurance, and general contractor insurance.

Our approach

At Cory Washington & Co., we treat the contract and the coverage as one problem, because they are. We read the indemnity and insurance language before you sign, check your general liability for an action over exclusion and get it addressed so the contractual liability and additional-insured status you're promising are actually backed, and make sure the right New York proof — your C-105.2 — is issued by the carrier, names the correct certificate holder, and stays current through every renewal. The goal is simple: the coverage you promised in the contract is the coverage that's there when a claim tests it.

Lining up a contract, or not sure what your current policy actually covers? Request a quote or a policy review and we'll read the fine print with you.

Frequently Asked

This article is general information for business owners, not insurance or legal advice, and does not bind or alter coverage. Policy terms, eligibility, and pricing vary by carrier and state — confirm specifics with our licensed team before making decisions.