Risk is ever present in construction, the fragmented, entrepreneurial characteristics of the industry create uncertainty and inconsistencies in safety practices as well as the legal and financial underpinnings of each project. A strong risk management program will help to limit exposure and liability for all project stakeholders.
Before engaging the construction manager or general contractor, the owner should review their insurance policy to be sure it does not exclude aspects of construction or construction in general, which would leave the owner with very little protection in case of an incident.
When negotiating with a construction manager, cost of coverage is often the metric that becomes the focus in negotiations instead of the terms and conditions that define coverage. Familiarity with the terms and conditions, ensuring you have maximum protection, will save you time, money and could quite possibly protect the financial security of the project.
The construction contract provided by the owner will define the insurance requirements that the construction manager must meet for their project. The expectation should be that the construction manager will provide a level of protection to the owner should they be brought into a claim that occurs during the project. At a minimum, it is important that the construction manager’s insurance program names the owner as additional insured on a primary/non-contributory basis. Being named as additional insured on a non-contributory basis means the construction managers insurance will provide the protection to the owner and does not ask for a contribution from the project owner’s policy until construction manager’s insurance is exhausted. All coverages provided by the construction manager to the owner must also be extended to obligate their subcontractors. Extending the obligation to their subcontractors provides another level of protection for the project owner.
TRITEC employs construction administrators for every construction project who ensure all subcontractor contracts have these same obligations. Our construction administrators review the terms and conditions in each of the subcontractors’ insurance policies to confirm they have the coverage and limits required in their contracts. The following endorsements need to be a part of their policy to provide another level of coverage and properly protect the owner:
Per Project Aggregate – Applies the limit of insurance the subcontractor carries to each project, ensuring that the subcontractor is not sharing coverage between all of their projects. The per project aggregate provides the owner with a specific limit of insurance for their project.
Completed Operation Additional Insured – The contractor’ s coverage extends to the owner for injuries and property damage claims caused as a result of construction activities for a specific duration of time, the warranty period, after the job’s completion.
Additional Insured Status on Auto – This coverage is extended to the owner to provide coverage at the job site for auto related claims. The loading and unloading of vehicles at the job site is considered an auto claim and not a general liability claim.
Construction administrators verify that a subcontractor’s insurance program does not contain exclusions & limitations that are detrimental to the owner as well. Examples of these exclusions include:
Subcontractor Injury Claims – The insurance program must not have an exclusion to cover employee or subcontractor injury claims. If this is excluded from the insurance program, then coverage will not be extended to the project owner for claims.
Subcontractor Insurance Warranty – The subcontractor’s insurance program can not contain a warranty that the subcontractor must require signed contracts and carry the same limits and coverage that the contractor carries. If the subcontractor does not have the same coverage(by error or omission), this allows the carrier to deny a claim.
Height Limitation – Insurance programs sometimes limit the amount of stories a subcontractor can work. If a sub has a 3-story limitation and they work on a taller building, their carrier will deny any claims that occur at any height outside of the restriction.
Designated Work Exclusion – Some insurance programs contain exclusions for any work outside the scope of the subcontractor’s occupation, i.e., a plumber cannot perform demolition. If the plumber does demolition and a claim occurs there will not be coverage.
In summary, not all insurance programs are created equal, and not all construction risk can be covered by insurance. Having a risk management plan managed by experienced professionals will help you address gaps in insurance coverage and ensure compliance with your contract and applicable municipal law.
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