I  am  a  general contractor in N.Y.  From  time  to  time I  sub
contract  work  from  other  contractors. There  is  one  case  where
I  sub contracted  a  siding  job.The  job  was  set  at  a  certain 
price. The  work  was  performed  and  inspected  by  the  contractor.
The  contractor  was  satisfied  with  the  job  and  paid  me  in 
full.The  home owner  is now (over a  year  later) having  problems 
with  water  coming  in  around  the  windows  when  it  rains. The 
contractor  is  trying  to  take  me  to  small  claims  court  for 
failure  to  caulk  around  the  windows. My  question  is  am  I 
liable  for  the  problem  even  though  I  am  not  the  one 
contracted  with  originally  and  there  was  only  a  verbal 
agreement  between  the  contractor  and  myself.

If you are sued you will have to show up in court and a judge will
decide if you are liable.  Verbal contracts are enforceable (except
where the sale of real estate is involved) but hard to prove exactly
what was agreed to.  In this case though, it appears a siding job was
contracted for and performed.  I don't know NY law(so legal advice
here) but is there a period where home improvements have to be
warranted for?  or was a warranty period specified?

The real question, as I see it, is "did the windows leak because they
weren't caulked?" and should you have caulked them?  If the answers
are "yes" and you want to have a good reputation in the industry I'd
come to some resolution with the contractor.  Did you inspect the
windows to determine why they are leaking?  Does your insurance cover
claims such as this?  A year isn't that long to identify a window leak
problem.  Mine only leaked during wind driven rain which didn't occur
that often.  My new home builder took several tries to correct the
leaks.