June 16, 2014
Make Sure Your Insurance Program Covers the Insurance Requirements In Your Contract
Most general contracts contain explicit and lengthy insurance requirements for the project and it is critical that the contractor make certain that it obtains all of the coverage required by the terms of the contract it is signing. Yet contractors often fail to review the insurance terms and merely submit their certificate of insurance and hope for the best. By failing to obtain all of the coverage specified in the contract and understand the terms that go along with them, the contractor exposes itself to damages that otherwise would be covered by insurance.
There are many different types of insurance policies and products available in the marketplace and contracts call for different types of policies. The contract terms typically address questions such as, who must buy the builder’s risk policy? Is a professional liability policy required? Does the owner want to use an OCIP policy? What policy limits are required? Must an additional insured be named? Is the insurance to be primary over everything else? Are subrogation rights waived? These questions must be addressed and understood at the time the contract is entered into in order to ensure that the contractor understands the risks it faces.
The contractor does not have to be an expert in insurance to make sure it is protected because it already has a knowledgeable professional in its corner – its insurance broker. A contractor should always provide its broker with the contract terms regarding insurance and indemnity, and ask for written confirmation that its insurance program is adequate. Managing risk through negotiating favorable contract terms and procuring the required insurance is critical. However, if the contract terms are not reviewed and the proper insurance is not obtained, a contractor exposes itself to substantial risk.
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