Having the proper insurance coverage is important to all parties involved in the construction process. The various contracts governing the construction project should be clear as to the coverage for which each of the parties is responsible. Additionally, the parties must confirm that the actual coverage in place meets the needs of the project. Here are a few thoughts to help you ensure that the coverage is clear and appropriate.
All parties involved in a construction project should be sure that the contract documents are clear in setting out who is responsible for obtaining specific types of insurance coverage. Typically, the contractor should provide commercial general liability insurance ("CGL") and the designers should provide professional liability insurance. However, things are not as clear when it comes to Builder's Risk insurance. Most traditional contract forms require the owner to obtain Builder's Risk coverage. Increasingly, though, the parties should consider finding out whether the owner or contractor can obtain the insurance most economically. Regardless who is going to obtain the Builder's Risk coverage, the parties need to be clear as to the interest that the Builder's Risk coverage is to insure. For example, the owner may buy the Builder's Risk coverage and only insure its interest. If the contractor believes that Builder's Risk is taken care of and does not confirm that its interests are also insured, there could be a gap in coverage in the event of a claim.
Once you have clarified the responsibilities for the various coverages, the parties should also confirm that the coverage contracted for is in place. Understanding the coverage provided by a policy may require you to look beyond the Certificates of Insurance exchanged at the beginning of the project. A Certificate of Insurance generally only tells part of a story. It will tell you what type of insurance is provided and the limits of that insurance. Typically it will not set out any endorsements that are included in the policy. It may be necessary for a party to request a copy of the insurance policy at issue so that it may see all of the endorsements and exclusions included in the policy.
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