A great question to stop and ask yourself — how certain are you that in the event of a claim your insurance program will trigger coverage? 

Oftentimes, contracts get signed and executed and the project starts, but you haven’t checked all of the insurance requirements — and then a major claim occurs. This article examines four problematic areas. 

Indemnification

Every contract contains some form of indemnity/hold harmless language, which requires you to indemnify upstream parties for your acts or others that could cause bodily injury, property damage, or other consequential damages. These vary in scope from standard industry contracts, like AIA and Consensus Docs, to hybrid versions including do-it-yourself wording. 

Although, you have some protection under anti-indemnity statutes in many states, you still may be exposing yourself to situations not covered by your liability insurance.

It is recommended that you do a review of each contract to determine if there is indemnification wording outside the scope of your liability insurance and consult with an attorney to amend it with acceptable language.  

Additional Insured Requirements

Just about every contract has additional insured (A/I) coverage requirements under Commercial General Liability, Business Auto Liability, and Umbrella/Excess Liability policies. The underlying reason is that upstream parties (owner/developers, GCs, and prime contractors) want to transfer the risk to the contractors performing the work.

Routinely they require the broadest form of A/I coverage. For example, under General Liability (GL), the gold standard is to require A/I status using the ISO GL A/I forms 2010 (Ongoing Operations) and 2037 (Completed Operations) with the 10/01 editions or “equivalent” forms, which provide the broadest level of coverage. In addition, A/I coverage routinely requires Primary Non-Contributory basis.

So, what if your GL program provides a more limited form of A/I coverage, such as the CG 20210 and 2037 07/04, 04/13 or 12/19 editions, or your insurance carrier proprietary forms, which do not comply, and a claim occurs? Your insurance carrier could ultimately deny coverage to the parties you’re contracted with, which could result in a breach of contract suit/litigation.

The key is to make sure you are providing the correct A/I coverage forms. It is recommended that you ask an insurance agent or broker to review the insurance requirements in the contract to assure you comply before executing the contract and prior to issuance of Certificates of Insurance (COIs).

Coverage Restrictions or Exclusions

With the uptick in construction liability litigation over the past several years, insurance carriers have tightened up their GL and Umbrella/Excess Liability (UMB) policies to exclude certain types of claims. 

For example, common exclusions today are silica, lead, synthetic stucco (EFIS/DEFS), PFAS, and absolute pollution because insurance carriers feel these types of exposures are outside the scope of traditional GL and UMB liability coverages and, as such, are unable to properly price the coverage. 

So, what do you do when you these exposures exist? It is recommended to secure Contractors Pollution Liability (CPL) coverage with adequate limits. These policies are standalone, and your Umbrella/Excess Liability policies will not drop down over CPL coverage.

Another area of concern is Contractor’s Professional Liability exclusions. If you provide any design/build services or modifications to construction plans, then you’ve created a professional liability exposure. With this, it is recommended to secure Contractors Errors and Omissions Liability coverage as part of your liability program or, if not available, a separate CPL policy with adequate limits. 

Additional Coverage Requested

Cyber liability and data breach attacks continue to occur in the construction industry, and upstream parties are requiring coverage in their construction agreements. It is recommended that you review the cyber coverage requirements with an agent or broker to make sure you comply.

In addition, owner/developers are starting to transfer builders risk coverage responsibility via contract to GCs and prime contractors. It is imperative that you obtain a copy of the owner/developer GC’s builder’s risk requirements, review them with your agent or broker, then add the builders risk coverage to their master builders risk program or secure a standalone builders risk coverage that will satisfy the owner/developer.

Based on the current litigation climate, nuclear verdicts and awards by the courts are being seen. As a result, owner/developers and GCs are requiring higher Umbrella/Excess Liability limits, and subcontractors need to determine if their current limits will comply. If they won’t comply, then request higher limits on their traditional Umbrella program, and if not available, secure excess liability coverage on top of their Umbrella to comply. 

Lastly, today, there is a trend for larger projects to be insured under a wrap-up program, which can take the form of an Owner-Controlled Insurance Program (OCIP) or Contractor-Controlled Insurance Program (CCIP).

Regardless of the type of wrap-up, the key is to review the wrap-up manual and enrollment forms with an agent/broker to make sure insurance bid deductions are being calculated correctly and that the traditional insurance program complies with all of the off-site coverage requirement not provided by the wrap-up.  

Finally, all of these exposures should be discussed thoroughly with your insurance agent/broker to determine if you have proper coverage in place. It is key to obtain a copy of the insurance requirements from the owner/developer or GC before bidding the project to make sure you have your insurance costs covered.  

This article has been expanded from an article previously published in ASA Online (asaonline.com), available at asaonline.com/2021/03/30/does-your-insurance-program-cover-all-the-insurance-requirements-in-the-contracts-youre-signing.