The construction insurance industry is constantly changing and the number of available insurance products continues to grow. The result is an increasingly complex market for construction project participants to navigate. Recognizing the need for more flexibility and adaptability, a new and comprehensive insurance exhibit has been created for use in conjunction with the following AIA Documents:
- A101™–2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is a stipulated sum;
- A102™–2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the cost of the work plus a fee with a guaranteed maximum price;
- A103™–2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the cost of the work plus a fee without a guaranteed maximum price; and
- The revised Article 11 (Insurance and Bonds) of A201™–2017, the General Conditions of the Contract for Construction.
To create a more flexible set of insurance requirements, the Insurance and Bonds Exhibit differentiates between required coverages and optional coverages. Required coverages are commonly procured on all construction projects. Required coverages for the contractor include, but are not limited to:
- commercial general liability coverage;
- auto liability coverage; and
- workers’ compensation and employers’ liability coverage.
Optional coverages should be discussed with an insurance advisor and selected based on specific project needs. For contractors, optional insurance coverages include:
- railroad protective liability insurance;
- asbestos abatement liability insurance;
- insurance for physical damage to property while in storage or transit; and
- property insurance to cover property owned by the contractor and used on the project.
Amid the revisions to Article 11 of A201-2017 is the removal of the requirement that the contractor’s certificates of insurance include an obligation on the part of the insurer to notify the owner of a pending lapse or cancellation in insurance. That provision was inconsistent with most insurance policies and was not binding on the carrier. Therefore the requirement was eliminated from A201-2017.
To be more consistent with the insurance industry, A201–2017 now requires that the owner and contractor (as opposed to the insurers) to each provide the other with notice of an impending or actual cancellation or expiration of insurance coverage. Additionally, there are provisions that protect the interests of the contractor and subcontractors if the owner fails to purchase any of the insurance as required by the agreement or contract documents.
Article 11 contains broad waivers of subrogation for damages covered by fire, or other causes of loss, to the extent those losses are covered, or required to be covered, by property insurance required by the agreement or other property insurance applicable to the project, including property insurance the owner might have under policies that are separate from those insuring the project. It is particularly important to discuss these waivers with insurers to make sure it is not prohibited by a policy.
Article 11 also contains new provisions on adjustment and settlement of insured losses covered by the required property insurance. The loss is to be adjusted by, and made payable to, the owner as fiduciary for the insured, including the contractor and architect. Prior to settlement of an insured loss, the owner must notify the contractor of the proposed settlement as well as the proposed allocation of the insurance proceeds. The contractor has 14 days from receipt of notice to object to the proposed settlement and allocation.
If the contractor does not object, the owner will settle the loss and the contractor will be bound by the settlement and allocation. If the contractor timely objects to the settlement and allocation, the owner may proceed to settle the loss and any dispute between the owner and contractor pertaining to the settlement or allocation of proceeds is to be resolved under the Claims and Disputes provisions.
As a final note, the new Insurance and Bonds Exhibit has been developed to make it easier for contractors to identify what is available while selecting insurance for their project. The use of an exhibit to A201-2017, as opposed to including the terms of the exhibit into the text of A201-2017, was intended to simplify the user’s ability to transmit the insurance exhibit to their insurance advisor or broker for evaluation and completion. Additionally, a separate exhibit allows the AIA to update insurance requirements, if necessary to keep up with industry and market changes, without having to revise the General Conditions document.
By working with insurance advisors and selecting the appropriate optional coverages, contractors and owners know that project risks will be adequately covered.
Learn more and download a sample of the new AIA Insurance and Bonds Exhibit.