THE DEVIL IS IN THE DETAILS
Construction is a high risk activity with many personal injuries and property losses or damage arising out of construction work. In construction contracts, the owner normally requires the general contractor to show proof of various types of insurance, including a commercial general liability (“CGL”) policy, and for a general contractor to require its subcontractors to carry a CGL policy to protect against liability for personal injury and property damage.
Insurance requirements that are generally unique to construction contracts include Surety Bonds, CIP (Controlled Insurance Program), Higher Limits and Extended Coverage or Additional Insured. The surety bonds related to public work contracts include: Bid Bond, Performance Bond and Payment Bonds and Completion Bonds. Collectively, they are referred to as Contract Bonds. The CIP concept should provide for cost savings to the owner due to purchasing economies of scale, cash flow advantages from controlling premium payments, potential for dividend returns and potential for savings due to coordinated loss control. The recommended minimum limit for general liability is $5 million per occurrence. The higher limit is appropriate for general contractors on any new construction or major remodel projects. Subcontractors in areas of higher risk should have limits above the standard minimum of $1 million. The Payment Bond and the Performance Bond shall be in a sum equal to the contract price. Additional Insured is an endorsement to the Commercial General Liability (CGL) policy will name your entity as an additional insured under the contractor’s policy for covered claims arising from their work or activities on your behalf. This status gives you direct rights under the Contractor’s insurance and greatly increases your chances of recovery, especially for your legal defense.
Subcontractors should insist on insurance requirements that they, and their insurance agents, can understand and comply with. When a subcontractor bids on a project specifying participation in a wrap-up or CIP, it should calculate the appropriate criteria and include flat-rate numbers in its bid, or state in its bid that it will not participate in the wrap-up. Bidders should focus on the insurance requirements early in bid preparation, and not delay disputes about compliance with the requirements until after it has started work. Subcontractors should make their bids dependent on the suitability of their existing insurance programs and negotiate for reasonable insurance requirements before signing a subcontract. Contractors often argue that insurance requirements “all come down from the owner.” While owners often insist the general contractor require subcontractors provide additional insured coverage, and/or waivers of subrogation, favoring the owner.
Mark your calendars for the AWCI Convention and Intex Expo from April 15 through April 19th in New Orleans, Louisiana. For more information and to register for this event please go online to www.awci.org/convention. I look forward to see you all there.
- Mike Weber