Let’s Be Clear: Three Insurance Requirement Details to Include in the Contract


Whether the claim relates to a finished project or one that is still under construction, the last thing owners and contractors want is to find out is that there is no insurance. This stressful circumstance can destroy an otherwise productive business relationship between an owner and a contractor as both camps are left to address the potential for expensive litigation to protect their interests.

A lack of appropriate insurance coverage is often the consequence of unclear insurance requirements in the contract. Here are a few tips for incorporating clear insurance requirements that may help avoid later finger-pointing in the event of a claim:

1. Be Specific About the Coverage Forms. Too often, insurance requirements list the types of coverage required (usually commercial general liability, auto liability, workers’ compensation, employer’s liability, professional liability, and excess liability) without clearly stating the forms on which the policies should be written. For many types of coverage, the Insurance Services Office (“ISO”) has published forms that are considered standard in the industry. It is best practice to include the coverage form as a requirement in the contract to avoid any confusion about the expectation of coverage. For example, if the project includes hauling waste away from the site, the contract should require that the auto liability form include the ISO form endorsement that broadens coverage to include certain pollution liability (currently ISO form CA 99 48 03 06). Taking the extra step to specify the expected form on which a policy is to be written provides greater certainty that appropriate coverage is put in place.

2. Be Explicit with Additional Insured Requirements. It is expected that the owner will be an additional insured on all of the contractor’s and subcontractors’ liability insurance policies. That’s obvious. Owners rely on the contractor’s insurance to manage risk both during a project and for years after construction is completed. That is why it is critical to give sufficient detail in the contract about what is expected when adding the owner as an additional insured on each of the liability policies. The contract should indicate that all liability policies required under the contract contain an endorsement that expressly names the owner—and its affiliates, subsidiaries, directors, officers, employees, and agents—as additional insureds for both on-going and completed operations. Again, the contract should specify the ISO form containing the correct additional insured endorsement needed for the project—consult an experienced insurance coverage attorney for assistance with selecting the appropriate form. Furthermore, the coverage under the additional insured endorsement should (1) be primary and noncontributory with respect to any insurance maintained by the additional insureds; (2) provide the same coverages and limits to the additional insureds as are afforded to the named insureds; and (3) provide coverage to the additional insureds for the products-completed operations hazard. Adding those details to the contract helps to ensure all of that the folks who expect coverage actually have coverage.

3. Require and Obtain Proof of Insurance. Last but not least, it is imperative that the contract is clear about what is required for providing proof of insurance. Many contracts require that the contractor and subcontractors provide a certificate of insurance as proof of the existence of the specified insurance coverage. Certificates of insurance are not proof of insurance. The better practice is for the contract to require the contractor to provide the owner with certified copies of all policies specified in the contract, including certified copies of the policies subcontractors are required to obtain. The next step is for the owner to follow up and actually obtain those copies before commencing work. There are two benefits to this approach. First, the certified copies can be compared against the insurance requirements spelled out in the contract to ensure that all parties have appropriate coverages and policy limits. Second, in the event of a claim, all parties have the information and documentation necessary to tender a claim to the insurer—which can greatly expedite the process of getting the insurer to defend the claim.

These tips are not exhaustive. Making sure that a contract’s insurance requirements are clear and contain sufficient detail is a project-dependent undertaking, for which it is best to consult an experienced insurance coverage attorney.

Originally published as “OP-ED: Three insurance requirement details to include in contracts” by the Daily Journal of Commerce, Aug. 15, 2019.

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