The Case Against Artisan Policies

On April 24, 2012, the Appellate Division in New York decided a case against an insurance company involving the New York False Claims Act and the issuance of “artisan policies.” Artisan policies are designed to provide coverage for small contractors, such as carpenters, plumbers and roofers, or other skilled manual laborers, but do not generally cover activities on commercial construction projects, such as excavation. The owners of two buildings that were damaged by construction work on adjacent buildings filed a lawsuit in New York in 2009 alleging that Utica Insurance Company – the insurer that issued artisan policies to con tractors – knew the contractors used the artisan policies to register with the Department of Buildings to receive permits to work.  Specifically, plaintiffs claimed that Utica issued ACORD Form 25 certificates of insurance to contractors and described the artisan policies as providing “general liability” coverage and the contractors used the ACORD form as part of their applications to the Department of Buildings to show proof of adequate general liability insurance. In reviewing plaintiffs’ arguments, the Court noted that the False Claims Act applies “to any sort of looting of the public purse.” The court, however, disagreed with plaintiffs’ theory that Utica looted public fees the Department of Buildings would have received if the contractors paid higher premiums inherent in the purchase of general liability insurance as distinguished from the lower premiums of the artisan policies. In short, the court found that “there is nothing false or misleading about describing the artisan policy as ‘commercial general liability’ coverage.” In this case, since the sale of policies to the contractors was legal, and nothing on the ACORD forms was false, the court concluded that “selling artisan policies to defendant contractors and providing them with the ACORD form that listed the artisan policies as a ‘commercial general liability’ type of policy is insufficient to allege liability under the [False Claims Act].”  The Court therefore reversed the lower court’s decision and dismissed the complaint against the insurer finding it did not violate the law when it issued limited coverage to contractors, even though the contractors used the artisan policies to secure construction permits. Notably, in 2010, after this suit was filed, the Department of Buildings issued a notice to contractors that artisan policies would no longer be accepted for general construction permits.