how to draft a construction contract insurance … to draft a construction contract insurance...

How to Draft a Construction ContractInsurance ProvisionPatrick J. O'Connor, Jr.*

I. INTRODUCTIONII. DESCRIPTION OF COVERAGES

A. Contractor's Liability InsuranceB. Property Insurance

III. DRILLING DOWN ON GENERAL LIABILITY INSUR-ANCE

IV. COMMERCIAL GENERAL LIABILITY CHECKLISTV. DRILLING DOWN ON PROPERTY COVERAGEVI. BUILDER'S RISK/INSTALLATION FLOATERS

CHECKLISTVII. CONTRACTOR'S EQUIPMENT FLOATER COVERAGEVIII. ADDITIONAL INSURED COVERAGEIX. SUBROGATION WAIVERSX. COVERAGE LIMITSXI. EXCESS AND UMBRELLA COVERAGEXII. UMBRELLA/EXCESS LIABILITY CHECKLISTXIII. WORKERS' COMPENSATION AND EMPLOYER'S LI-

ABILITY INSURANCEXIV. PROFESSIONAL LIABILITY INSURANCEXV. POLLUTION LIABILITY INSURANCEXVI. CARRIER FINANCIAL THRESHOLDSXVII. EVIDENCE OF COVERAGE

I. Introduction

Crafting reasonable and appropriate construction insuranceprovisions requires the practitioner to be familiar with designand construction risks as well as the insurance products avail-able to address them. Fortunately, there are standard agree-

*Patrick J. O'Connor, Jr., is a Fellow of the American College of Construc-tion Lawyers and a Partner in the �rm of Faegre Baker Daniels, Minneapolis,Minnesota. He is the co-author of Philip L. Bruner and Patrick J. O'Connor, Jr.,Bruner & O'Connor on Construction Law.

123© Thomson Reuters E Journal of the ACCL E Vol. 8 No. 1

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ments with good insurance provisions. The American Institute ofArchitects (AIA) publishes a General Conditions Document (Doc-ument A201-2007) that addresses insurance and bonds in Article11.1 Article 11 of the AIA General Conditions Document is a goodstarting point for any practitioner charged with drafting aconstruction contract insurance provision.2

II. Description of CoveragesA key provision of any insurance provision is a description of

the insurance coverages required by the parties. The AIA clause,at least with respect to the contractor's liability insurance, goesabout this by describing the risks or claims against which thecontractor must protect itself through insurance. Paragraph11.1.1 of the General Conditions Document identi�es eight“claims” against which the contractor must secure and maintaininsurance.3 The eight “claims” for which coverage must be securedare:

E Claims under workers' compensation and other similar em-ployee bene�t acts;4

E Claims for damages because of bodily injury to contractor'semployees;

E Claims for damages because of bodily injury to persons otherthan the contractor's employees;5

1See AIA A201-2007 document. Article 11 of the AIA General Conditions

Document is entitled “Insurance and Bonds.” While the title suggests equaltreatment of these two topics, more than 90% of this nearly three-page article isdevoted to insurance.

2For a paragraph-by-paragraph discussion of the insurance article in the

1997 edition of the AIA General Conditions Document, see Bruner & O'Connoron Construction Law §§ 5:209 to 5:236.

3A close reading of these eight “claims” reveals that, while some are

fashioned in terms of the actual risks sought to be covered, others are a bitmore circular insofar as their scope is de�ned in terms of particular insurancecoverages. Compare § 11.1.1.2, Claims for Damages Because of Bodily Injury,Occupational Sickness or Disease, or Death of the Contractor's Employees(which implicates employer's liability and workers' compensation coverages) to§ 11.1.1.8, which requires coverage for “[c]laims involving contractual liabilityinsurance applicable to the Contractor's obligations under § 3.18 [the indemnityprovision]” (which implicates general liability coverage containing the insuredcontract exception to the standard contractual liability exclusion).

4See Bruner & O'Connor on Construction Law §§ 11:298, 11.299.

5See Bruner & O'Connor on Construction Law § 11:80.

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E Claims for damages insured by usual personal injury li-ability coverage;6

E Claims for damages, other than to the work itself, because ofinjury or destruction of tangible property (including loss ofuse resulting therefrom);7

E Claims for damages because of bodily injury or propertydamage arising out of the ownership or use of a motor vehi-cle;8

E Claims for bodily injury or property damage arising out ofcompleted operations; and

E Claims involving contractual liability insurance applicableto the contractor's indemnity obligations.

Section 11.1.2 of the AIA General Conditions Documentrequires the contractor's liability coverages to be maintainedwithout interruption from the date of commencement until thedate of �nal payment. The contractor's completed operationscoverage is to be maintained until the expiration of the period forcorrection of work or as otherwise speci�ed in the ContractDocuments. Requiring a speci�c duration for completed opera-tions coverage is perhaps a result of the AIA form permitting thecontractor to secure liability coverage on either an occurrence orclaims-made basis.9 Few contractors purchase general liabilitycoverage on a claims-made form, as the occurrence form is read-ily available and responds better to latent progressive injury. Itis common for construction insurance provisions to mandate thatgeneral liability coverage be secured on an occurrence form.

A. Contractor's Liability InsuranceThe insurance coverages indirectly speci�ed via these “claims”


7See Bruner & O'Connor on Construction Law §§ 11:81 to 11:90.

8See Bruner & O'Connor on Construction Law §§ 11:296, 11:297.

9This duration obligation is not likely to be met through any endorsement

to the CGL policy in place at time of project commencement as there is no read-ily available vehicle to accomplish this under an occurrence policy form. Becausethe coverage trigger under the occurrence form is the timing of the injury, themost direct way to ensure completed operations coverage for the one-year cor-rection of work period (AIA A201-2007, § 12.2.2.1) is to extend the policy periodout to cover the correction period. But this is equivalent to purchasing a multi-year rather than an annual policy. See Bruner & O'Connor on Construction Law§§ 11:175 to11:187. Under a claims-made form there is the option of purchasing“tail” coverage to meet this obligation, but there is no analog under the occur-rence form. See Bruner & O'Connor on Construction Law § 11:284. One way toview this completed operations obligation is simply as an agreement to purchasesimilar coverage upon the expiration of the existing policy.

How to Draft a Construction Contract Insurance Provision


are: (1) workers' compensation insurance; (2) employer's liabilityinsurance; (3) general liability insurance; and (4) automobile li-ability insurance. Workers' compensation insurance, not surpris-ingly, is required to cover “[c]laims under workers' compensation. . . and other similar employee bene�t acts.” Employer's liabilityinsurance addresses “[c]laims for damages because of bodilyinjury . . . of the contractor's employees.” In other words,employer's liability insurance addresses employee bodily injuryrisks not otherwise covered under workers' compensationinsurance. Automobile liability insurance, as one might expect,addresses “[c]laims for damages . . . arising out of ownership,maintenance or use of a motor vehicle.” General liability insur-ance responds to the remaining “claims.” For example, claims for“personal injury” are addressed under Coverage B of the stan-dard commercial general liability (CGL) policy form. A “personalinjury” claim that arises from time to time between constructionparticipants is defamation. On the whole, however, the vast ma-jority of construction risks covered by the CGL policy fall underCoverage A—the bodily injury and property damage coveragegrant. Claims for injury or destruction to tangible property, bodilyinjury claims to non-employees, claims arising out of “completedoperations” and claims involving contractual liability insuranceall fall under the standard CGL policy form. Even claims relatedto property damage to the “work itself” may be, depending uponthe speci�c circumstances and governing law, covered under theCGL policy notwithstanding the contractual carve out under§ 11.1.1.5.10

So what is missing?11 That depends. Does the job presentunusual pollution risks?12 If so, is the work in a jurisdiction thatrestricts the CGL policy's pollution exclusion to traditionalenvironmental exposures, or more broadly interprets it to coverall manner of activity, including construction operations?13 If thelatter, then some form of pollution liability coverage is probably

10AIA Document A201-2007, § 11.1.1.5 (“Claims for damages, other than to

the Work itself, because of injury to or destruction of tangible property, includ-ing loss of use resulting therefrom . . . .”) (Emphasis added.).

11The AIA provision addresses the owner's liability insurance in one

sentence: “The Owner shall be responsible for purchasing and maintaining theOwner's usual liability insurance.” AIA Document A201-2007, § 11.2. The“usual” liability insurance may not be enough where the owner is undertaking amajor renovation project. See Bruner & O'Connor on Construction Law §§ 11:81to 11:83, 11:87, 11:100 to 11:105.



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in order (it may well be prudent to secure it in any event).14 Isthe contractor expected to perform design work? If so, it is advis-able to explore requiring the contractor to secure and maintainsome form of professional liability insurance.15

Does the construction present any peculiar explosion, collapseor underground hazards? If so, the common restrictive endorse-ments addressing those risks (often designated “X, C & U”endorsements) need to avoided. One such endorsement, Insur-ance Services O�ce (ISO) CG 21 42, takes away coverage forspeci�ed locations and operations, whereas the other, CG 21 43,excludes coverage for all locations and operations, except thoselocations and operations speci�ed.

B. Property InsuranceThe contractor's liability insurance is only part of the picture.

The planned improvement also needs to be protected againstcommon perils such as �re, windstorm, and the like. Thetraditional property insurance product covering structuresundergoing construction activities is the builder's risk policy.16

The AIA insurance article calls for the owner to purchase andmaintain property insurance. While this is the most common ap-proach, it is not universal. On some construction projects, thecontractor is responsible for purchasing the property or builder'srisk insurance. Both the owner and contractor have an interestin securing appropriate property coverage.17 But as it is the ownerthat pays for the coverage, and under most delivery approaches(except perhaps for certain turnkey projects), it is the owner thatowns the property during the construction process, the customaryapproach is for the owner to secure the property coverage. Wherethe construction involves renovations or additions to an existingstructure there is an added incentive for the owner to secure theproperty coverage on the new improvements as it is important tocoordinate the coverages on the existing structure with thoseresponding to the new improvements.

The AIA General Conditions Document provides the followingrequirements for the owner's property insurance:



16See Bruner & O'Connor on Construction Law §§ 11:211 to 280.

17See Bruner & O'Connor on Construction Law §§ 11:220; 11:220.10, 11.

220.20.



E It is to be written on a “builder's risk/all-risk” or equivalentpolicy form;18

E It is to be in the amount of the initial contract sum, plusvalue of subsequent contract modi�cations and cost of mate-rial supplied or installed by others (the total value of theentire project);

E Is to be written on a replacement cost basis without optionaldeductibles;19

E It shall insure against the perils of �re (with extended cover-age), theft, vandalism, malicious mischief, collapse, earth-quake, �ood and windstorm;20

E The coverage shall extend to not only the permanentimprovements but also false work and temporary buildings;21

E Debris removal (including demolition occasioned by legalrequirements) is speci�ed;22

E Physical loss or damage due to testing and start-up is re-quired;23

E Soft costs coverage for compensation to the architect andcontractor for services and expenses required as a result ofan insured loss is to be provided;24 and

E Work stored o�site and work in transit is covered.25

Coverage is to stay in place until �nal payment has been madeor until no person or entity other than the owner has an insur-able interest in the property, whichever is later. If the owner isexpected to occupy a portion of the project before �nal payment,the property insurer must consent to the occupancy and theowner and contractor must take reasonable steps to obtainconsent or otherwise take no action with respect to partial oc-cupancy that would cause cancellation, lapse, or reduction ofinsurance.

If the owner does not intend to purchase property coverage orif it intends to acquire coverages less inclusive than that requiredunder the AIA document, the owner is required to inform the

18See Bruner & O'Connor on Construction Law § 11:211.10.



21See Bruner & O'Connor on Construction Law §§ 11:219 and 11:219.10.





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contractor of its intention before the commencement of the work.The contractor may then secure the requisite insurance at theowner's expense. The owner bears all reasonable costs resultingfrom its failure or neglect to purchase and maintain the requiredinsurance.26

The AIA General Conditions insurance article also requires theowner to purchase boiler and machinery insurance as “requiredby the Contract Documents.” This coverage, if required, coversinsured objects during installation and until �nal acceptance bythe owner. When should boiler and machinery insurance bemandated? This insurance is a special type of property insurancedesigned to cover boilers, other pressurized vessels, and anymachinery that generates electric power. The coverage comes intwo general types: (1) standard comprehensive coverage, whichapplies to all objects except production machinery; and (2)extended comprehensive coverage, which applies to all objectsincluding production machinery. A substantial portion of thepremium collected is for inspection services rather than lossprevention. The coverage not only responds to injury to theinsured object but also to the surrounding area if damaged byexplosion or �re caused by the insured object. Some forms of thiscoverage also respond to business loss occasioned by the malfunc-tion or loss of use of the insured machinery. Sometimes the cover-age is referred to as “breakdown insurance.” This insuranceshould be considered for any industrial project or other construc-tion undertaking that involves signi�cant machinery.27

Any coverage gaps here? Once again, the AIA clause calls forrather comprehensive coverage. Nevertheless, there are insur-able exposures potentially left uncovered. One of the most signif-icant is the loss occasioned by the inability to use the completedimprovement at the time expected because of an insured peril orcause of loss. The AIA General Conditions leaves it to the owner's

26Contractors sometimes will purchase builder's risk “�oater” policies that

are not project-speci�c, but cover property damage at any project undertaken bythe contractor. These “�oater” programs may �ll coverage gaps not otherwiseinsured by a speci�c builder's risk program, but they often operate on an excessbasis by providing coverage only after the limits of the project-speci�c coverageare exhausted.

27Unless the same insurance company issues both the builder's risk and

boiler and machinery coverage, the parties should consider requiring the carri-ers to add a joint loss settlement agreement to their policies. This prevents dis-agreement between them as to which policy should respond to a particular lossand in what amounts. When both policies are appropriately endorsed, eachinsurer pays one-half of the disputed amount, pending resolution of the issuebetween the insurers.



discretion to purchase insurance that responds to loss of use ofthe owner's property due to �re or other hazards, howevercaused.28 This clause further states that the “Owner waives allrights of action against the contractor for loss of use of theOwner's property, including consequential losses due to �re orother hazards however caused.” Given this waiver, it is importantfor the owner to evaluate whether it should insure against thisexposure (or strike the waiver and the consequential damagewaiver at § 15.1.6, as well).29 The coverage that responds to thisrisk is business interruption insurance.30

III. Drilling Down on General Liability InsuranceWhile general liability coverage is more uniform than property

coverage, given the prevalent use of standard CGL ISO forms,the trend of recent years is toward less uniformity. The prevalentuse of endorsements which alter the underlying coverage a�ordedby the basic ISO general liability coverage form has led someowners to become more speci�c about describing requiredcoverages. One approach is to speci�cally identify the minimumcoverages required. A sample listing might include some or all ofthe following:

1. Premises and operations;2. Independent contractor liability (including contingent li-

ability);3. Completed products and operations liability (specifying the

number of years after completion of the work it is to be inforce);

28AIA Document A201-2007 § 11.3.3.

29Striking these provisions is not likely to be “cost-free.” The decision to

forego insurance covering this business interruption expense and eliminatingthe contract provisions which place this risk with the owner inevitably makesthe project �nancially more risky for the construction team. Just how this willfactor into pricing involves multiple factors including overall market conditions,the contractors' subjective evaluation of the risk, and whether there exist rea-sonable mitigation alternatives. The absence of this coverage also makes theundertaking more risky for the owner. While the owner may have recourseagainst the contractor for a �re loss or other covered loss caused by the contrac-tor or its subcontractors, many property losses are unrelated to constructionactivities—if a tornado destroys the construction site and the owner incursdelay damages, this optional coverage would come in very handy. Moreover,recovery from the construction team for delay is less e�cient, particularly if lit-igation is required, than from a property carrier. This ine�ciency can stop arebuilding e�ort where the owner's �nancial resources are insu�cient to proceedin the absence of a recovery.


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4. Contractual liability insurance (blanket coverage broadform);

5. Personal injury liability, including coverage for employeesand advertising injury;

6. Broad form property damage liability insurance (includingcompleted operations);

7. Blanket X, C, and U coverage;8. Railroad protective liability insurance;9. Elevators.Another approach, which can be used in combination with

identifying particular coverages for speci�c risks, is to prohibitspeci�c endorsements which restrict or eliminate coverage. Thisapproach has gained favor as the standard CGL policy hasbecome ladened with restrictive endorsements. These provisionsset a baseline by requiring the minimum scope of coverage interms of a basic ISO coverage form, such as Insurance ServicesO�ce Form CG 0001 (written on an occurrence rather thanclaims-made form). Once the basic coverage form is speci�ed, it ispossible to enumerate the prohibited exclusions or restrictiveendorsements. These may include:

1. Damage to work performed by subcontractorsexclusion. This exclusion eliminates the subcontractorexception to the completed operations work exclusion. Theendorsement used on a blanket basis is CG 22 94, and theone for site-speci�c jobs is CG 22 95.31

2. Exterior insulation and �nish systems exclusion (CG21 86).32 This exclusion eliminates property damage cover-age arising from EFIS employed on the project.

3. Amendment of insured contract de�nition endorse-ment (CG 24 26). This exclusion reduces the policy'scontractual liability coverage for incidents that are the solefault of the indemnitee. A more restrictive contractual li-ability endorsement known as the limited contractual li-ability endorsement, CG 21 39, takes away all coverage fortort liability assumed by the named insured (indemnitor).33

4. Silica exclusion.34 This exclusion eliminates bodily injurycoverage for silica exposures.

5. Habitational exclusionary endorsements. The wave of

31See Bruner & O'Connor on Construction Law §§ 11:105, 11:150.10.






litigation involving defects in residential construction hascaused many insurers to attach “habitational” endorsementsdesigned to exclude coverage for claims arising out of resi-dential construction. These endorsements are manuscriptrather than developed by the ISO.35

6. Broad employee exclusions. Carriers, of late, have beenadding independent contractor exclusions that broaden thede�nition of who is an “employee” for purposes of restrictingcoverage. Depending upon the wording of the exclusion,injuries to workers who would normally not be consideredthe insured's “employee” for purposes of an “employee” exclu-sion are nevertheless made so for purposes of the exclusion.This creates a coverage gap if the insured's workers'compensation or employer's liability coverage does notextend to such independent contractors.36

7. Prior injury exclusions. These exclusions can take anumber of di�erent forms. Some are crafted around a“known loss” concept.37 Others simply �ow all progressiveproperty damage into one policy period, similar to how lossof use without physical injury coverage is handled.38 Theseexclusions, seek to alter which policy responds to propertydamage losses caused by an occurrence that results in injuryover a number of policy periods.39

8. Roo�ng exclusions. Insurance policies deal with roo�ngrisks in a number of ways. Sometimes the risks sought to beexcluded are those associated with “hot” applicationtechniques. These applications create a �re hazard that someinsurers wish to avoid. Poorly-worded roo�ng exclusions,however, can create mischief.40

IV. Commercial General Liability ChecklistThe following is a CGL checklist that may provide some assis-

tance in issue spotting:E Occurrence (CGL) policy form—limits of coverage (per

occurrence/aggregate)



37See ISO CG 00 57 09 99—referred to as a “Montrose” endorsement.

38All loss of use where there is no physical injury is deemed to occur at the

time of the “occurrence” that caused it. See Bruner & O'Connor on ConstructionLaw § 11:89.



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E Deletion of selected contractual liability exclusions41

E Completed operations and products liability coverage42

E Broad form property damage coverage broadenedE Pollution coverage for jobsites43

E Notice of occurrence amendedE No exclusion of explosion, collapse, or underground damageE Personal injury liability coverage (remove Exclusion No. 4)44

E Limits of liability† General aggregate limit considerations† Per-project aggregate and per-locations

E Broad form named insured endorsementE Blanket additional insured if required by contract45

E Blanket waiver of subrogation if required by contract46

E Veri�ed broad form liability extensions includedE Additional insured/protective liability requirements47

E Policy dates consistent with umbrella/excess liability cover-age

E Owned or non-owned watercraft liability coverage48

E Owned or non-owed aircraft liability coverageE Limits of liability consistent with excess/umbrella require-

ments for underlying coverageE Joint venture (past and present)49

E Residual wrap-up coverageE Coverage for newly-formed entitiesE Advance notice of cancellation/non-renewal50

V. Drilling Down on Property CoverageUnlike general liability insurance, property coverage, particu-

larly builder's risk insurance, is written on a manuscript basis.Most policies are written on inland marine, rather than com-













mercial property, forms.51 There are common threads to thiscoverage but insurers frequently create coverages, exclusions,terms and conditions unique to them. What the policy a�ords canbe driven by any number of factors from market dynamics to aninsurer's internal risk retention concerns. One seldom encountersreferences to standard builder's risk coverage forms in construc-tion insurance provisions. The ISO, however, publishes a stan-dard form Builder's Risk policy form, CP 00 20 04 02 (2001). It isworthy of study, for it explains how certain coverages workthrough examples, contains a number of additional coverages andconditions, and describes how an under-insurance penalty works.

There are a number of property insurance issues worthconsidering, depending upon the nature of the project. Theseinclude:

1. Insureds. The policy should name the owner and allcontractors and subcontractors of every tier as insureds (aswell as mortgagees and lenders who have a �nancial inter-est in the project).52

2. Duration of Coverage. Uncertainty regarding projectcompletion can generate coverage disputes. Industrial proj-ects, such as power plants and other industrial facilities,often have extended testing and commissioning processeswith interim acceptances. If this is the case, the builder'srisk policy should be coordinated under these circumstancesso that it does not prematurely terminate.53 Where the policycontains a speci�c date of termination, it places an adminis-trative burden on the insureds to make sure that coverage isextended in the event of project delay.54 If the constructioncalls for phased completion with partial occupancy, the



53Ambiguity with respect to policy inception can also create problems. See

Cameo East Corp. v. National Fire Ins. Co. of Hartford, 52 A.D.2d 797, 383N.Y.S.2d 355 (1st Dep't 1976) (denying coverage because construction had notcommenced); Ira S. Bushey & Sons v. American Ins. Co., 237 N.Y. 24, 142 N.E.340 (1923) (destruction of shipbuilding materials by �re covered after thematerials were delivered and shaped for construction, even though not yetincorporated as part of the construction work); Bosecker v. West�eld Ins. Co.,724 N.E.2d 241 (Ind. 2000) (coverage for renovation and repair of existingstructure measured from start date of policy rather than date of commencementof actual construction work).

54See Hospital Service Dist. No. 1 of Plaquemines Parish v. Delta Gas, Inc.,

141 So. 2d 925 (La. Ct. App. 4th Cir. 1962) (insured's failure to extend builder'srisk policy to �nal completion resulted in denial of coverage for course-of-

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policy should be crafted to a�ord coverage through theseperiods.55

3. Coverage for Maintenance/Warranty Work and Post-Completion Property Damage. While “maintenance pe-riod” coverage for post-completion, construction-related dam-age is not common in the United States, some foreigninsurers o�er such coverage, which has become a standardcoverage under the Marine Builder's Risk policy available inthe United Kingdom.

4. Covered Property. It is common for builder's risk policiesto exclude certain property that might well be within thescope of a construction undertaking. For example, landscap-ing, sidewalks, driveways, and other exterior constructionmay be excluded.56 If these features �gure prominently, thenthey should be addressed as part of contract negotiations.

In 1990, Willis Corroon Corporation conducted a study onbuilder's risk insurance. The �ndings are instructive

E Brokers and underwriters arranging the insurance programoften had not seen the project documents.

construction explosion occurring several months after the policy's statedtermination date).

55Care must be taken with respect to ensuring that the builder's risk cover-

age does not terminate before the permanent property policy is in place.Builder's risk policies are not uniform as to when coverage ceases. Variouscoverage cessation triggers are employed, including:

E A speci�ed date—the expiration or termination of the policy.E Acceptance of the completed project by the owner.E Completion of the project.E The point at which the insured's insurable interest ends.E Some speci�ed number of days (60 or 90 are common) after completion

of the project.E Upon occupancy.

Just when a project is complete can be subject to debate. Builder's risk policiesmay or may not de�ne completion. As a consequence, there can be disagreementover whether this cessation “trigger has been pulled.” See Fireman's Fund Ins.Co. v. Millers' Mut. Ins. Ass'n, 451 F.2d 1140 (10th Cir. 1971) (Policy statedthat coverage ceased once the project was complete, accepted by the owner, andthe insured's insurable interest had ceased, where only one item remained to becorrected, which was of a “de minimis nature,” the project was complete andcoverage ceased.); American & Foreign Ins. Co. v. Allied Plumbing & HeatingCo., 36 Mich. App. 561, 194 N.W.2d 158 (1971) (apartment building was notcomplete at time of �re, even though some tenants had moved into the apart-ments, because there was “still a great deal of work to be done” on the building).




E It was common for the insurance policies not to comply withthe insurance requirements of the contract documents.

E Property owners and operators, in general, were betterserved by placing insurance on their construction risks withtheir normal property insurance company.

E Contractors, in general, were better served by specialbuilder's risk policies.

E Most policies did not cover hot testing, boiler explosion,machinery breakdown, or electrical injury.

E Stand-alone builder's risk policies provided little, if any,coverage for indirect loss (business interruption, extraexpense, delayed opening, and soft costs).

E Stand-alone builder's risk policies generally contained fewerrestrictions on perils covered and property covered.57

VI. Builder's Risk/Installation Floaters ChecklistThe following is a checklist for builder's risk issues that may

be of relevance depending upon the nature of the project:E Broad all-risk perils in lieu of speci�c coveragesE Valuation—replacement vs. actual cash value58

E Coverage applicable to all work, including Di�erences InConditions (DIC) exposures

E Coverage for materials and equipment in transitE Coverage for �ood damageE Earthquake/earth movement coverage59

E Deductibles/self-insured retentions applicable60

E Co-insurance requirements, if any61

E Report of completed values or gross receipts requirementsE Territorial coverage limitationsE Complete and accurate names of insuredsE Joint venture issuesE Termination of coverage issuesE Adequacy of limits and sublimits in relation to values62

E Advance notice of cancellation/non-renewal

57See James H. Costner, “Contract Requirements and Builders Risk Cover-

age,” IRMI, Risk Report, Vol. XVII, No. 7 (March 1995).58

See Bruner & O'Connor on Construction Law §§ 11:269 to 11:276.59

See Bruner & O'Connor on Construction Law § 11:247.60



See Bruner & O'Connor on Construction Law § 11:228.10.

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E Coverage for o�-site storageE Sca�olding and false work coverageE Temporary structures, foundations and excavation sitesE Materials and supplies, including fencesE Testing coverage63

E Water damage—back-up and seepage64

E Freezing65

E Debris removalE Delayed opening coverage66

E Design error or faulty workmanship (and ensuing loss excep-tions)67

E Performance guarantee, e�cacy68

E Force majeureE Sinkhole69

E Type of collapse coverage.70

VII. Contractor's Equipment Floater CoverageBecause most builder's risk policies exclude contractor equip-

ment, it is not uncommon for construction insurance provisionsto require the contractor to secure adequate insurance on itsequipment. This particularly is so where the use of certain equip-ment is critical to insuring timely completion. The property cover-age responding to this risk is an equipment �oater that protectscovered equipment no matter where it might be used. This is aform of inland marine insurance. Because equipment �oatersoften exclude crane equipment and equipment principally usedunderground, it can be important to directly address such equip-ment in the insurance provision if it is critical to the progress ofthe work. The following is a contractor's equipment �oaterchecklist:

E Broad all-risk perils in lieu of speci�c coveragesE Complete and accurate inventory of equipmentE Blanket limit of liability








70See Bruner & O'Connor on Construction Law §§ 11:229 and 11:230.



E Valuation on replacement cost or actual cash value71

E No coinsuranceE Provision for newly acquired equipmentE Automatic coverage for rented equipmentE Protection of lessor's interest, including loss of useE Automatic coverage for newly acquired equipmentE On-premises coverageE Equipment in transitE Equipment at jobsitesE Deductibles applicableE Consideration of alternative deductible levels and premiumsE Reported value requirements, if anyE Territorial coverage limitations/foreign operationsE Coverage for newly acquired entitiesE Joint venture issuesE Advance notice of cancellation/non-renewalE Boom coverageE Rental cost reimbursementE Mobile equipmentE Overturn of equipment.

VIII. Additional Insured CoverageThe AIA General Conditions Document requires the contractor

to provide additional insured coverage under its general liabilitypolicy to the owner, the architect, and the architect's consultants.72

The language is rather minimal, but tracks the 2004 ISO ad-ditional insured endorsements.73 In this regard, the scope of ad-ditional insured coverage is “for claims caused in whole in partby the contractor's negligent acts or omissions.”74 The AIA provi-sion also splits the coverage between ongoing operations (“duringthe contractor's operations”) and “completed operations.” The ad-ditional insured coverage a�orded the architect and the architect'sconsultants is only for claims during ongoing operations. Theowner is the bene�ciary of both ongoing and completed opera-tions coverage.

It is common for construction contract insurance provisions todevote a good deal of language to the additional insured coverage


72AIA Document A201-2007, § 11.1.4.


74AIA Document A201-2007, § 11.1.4.

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requirement. Some additional requirements or issues encounteredare:

1. Coverage must be primary and non-contributory. Thisrequirement is su�ciently prevalent to have caused the ISOin 2013 to create a speci�c endorsement addressing it.Endorsement CG 20 01, Primary and Non-contributoryOther Insurance Endorsement, meets the requests made byinsurers and agents to introduce an endorsement to ex-pressly state that coverage provided to an additional insuredis done so on a “primary and non-contributory” basis, asmany construction contracts require it. The endorsementrevises the “other insurance”75 clause to indicate that cover-age is “primary and non-contributory” provided the ad-ditional insured is a named insured on other insurance ap-plicable to them and a written contract or agreement hasbeen entered into by the insured stating the insured's policywill be “primary and non-contributory” and it will not seekcontribution from any other insurance available to the ad-ditional insured. If the additional insured coverage is notclearly delineated as primary and non-contributory, the ad-ditional insurer might have a basis for seeking contributionfrom the additional insured's primary CGL carrier.76

2. Elimination of any cross-suits exclusion. The “cross-suits” or “insured vs. insured” exclusion can create a directcon�ict with additional insured coverage. A “cross-suits”exclusion eliminates coverage for claims by one insuredagainst another. These provisions are common in certaintypes of insurance, such as Directors & O�cers Liabilityinsurance. They are less common, but not to the point of be-ing unusual, in policies issued to contractors. They can cre-ate problems for the named insured in cases where aninjured employee sues the additional insured. In such cir-cumstances, it is not uncommon for the additional insuredto seek indemnity from the named insured. A cross-suitsexclusion, if enforced, would eliminate coverage for the claimagainst the named insured.77

3. Elimination of any privity requirement. A standardfeature of additional insured coverage is that the obligationto provide the coverage must arise from a written agreement.For the most part, this condition creates few issues. More






recent endorsement language, however, adds a wrinkle byrequiring the named insured and additional insured to be inprivity. An endorsement containing this language does notcomply with the AIA General Conditions agreement, whichrequires the contractor to provide additional insured cover-age to not only the owner, with whom it is in privity, butalso to the architect and the architect's consultants. There isno privity between the contractor and the architect or itsconsultants and, as a consequence, the contractor would bein breach of this obligation if the additional insured endorse-ment its insurer employed contained a privity condition.78

4. Broad additional insured coverage. Additional insuredsprefer the “good old days.” In this regard, it is not unusualfor owners and general contractors to require additionalinsured coverage under old (and often no longer com-mercially available) endorsement forms. A favorite form isCG 20 10 11 85. The “85” refers to the year the endorsementwas issued. In this case, over a quarter century ago. Thisform uses the “arising out of” rather than the “caused inwhole or in part” coverage trigger. The “arising out of”language has been the subject of much litigation over theyears, with courts adopting either “broad” or “narrow” posi-tions regarding the coverage a�orded.79 While insureds witha certain amount of market power may be able to secure an“85” endorsement, many cannot. Perhaps in recognition ofthis fact, contract language often will state that the 85 form“or its equivalent” is required. Whether there is an actual“equivalent” commercially available today is open to debate,but ISO forms CG 20 10 10 01 (ongoing operations) and CG20 37 10 01 (completed operations) combine to provide as

78Endorsement Form CG 20 33 amends the “who is an insured” provision

to add as an additional insured any person or organization for whom the namedinsured is performing operations when the parties have agreed in writing in acontract that such person or organization will be added as an additional insured.As written it is possible that this endorsement will not a�ord coverage to thirdparties notwithstanding a contractual commitment to do so. A new CG 20 38endorsement is intended to provide additional insured status to those partieswhom the named insured is obligated in writing in a contract or agreement toname as an additional insured under its policy. Thus, CG 20 38 broadens cover-age to non-privity situations. See Bruner & O'Connor on Construction Law§ 11:152.20.


Journal of the ACCL


close an equivalent as many are likely to secure in the cur-rent environment.80

5. Coverage sculpted by anti-indemnity laws and relatedlegislation. Many states have “anti-indemni�cation” lawsthat prohibit provisions in construction contracts thatrequire a party to indemnify another party against liabilityfor the other party's own negligence or fault.81 A few statesextend this prohibition to contract provisions requiring aparty to provide additional insured coverage to another forthe other's own negligence.82 These developments have ledthe insurance industry to develop new ISO language thatrestricts additional insured coverage “to the extent providedby law.” This new language is intended to sync the endorse-ment to the law. It is also intended to clarify that the cover-age a�orded to the additional insured will not be broaderthan that which the named insured is required to provide bycontract. Whether it actually does this only time will tell.For example, if the contract calls for $2 million of coveragebut the policy under which the additional insured is a�ordedcoverage has limits of $5 million, is the “only to the extentprovided by law” language su�cient to limit the coverage af-forded the additional insured to $2 rather than $5 million?This is an open question.

6. Exclusion of professional additional insureds. Even incases where the named insured is able to secure additionalinsured coverage for non-privity entities, there may be resis-tance to providing such coverage to professionals, such asarchitects and engineers.

On occasion the contract may permit the contractor to providean Owners' and Contractors' Protective Liability Insurance (OCP)policy in lieu of additional insured coverage under the contractor'sCGL policy.83 Care must be taken to carefully examine the OCP



82See Minn. Stat. § 337.05(b), which reads:

A provision that requires a party to provide insurance coverage to one or more otherparties, including third parties, for the negligence or intentional acts or omissions ofany of those other parties, including third parties, is against public policy and is voidand unenforceable.

83See ConsensusDocs No. 410, Standard Design-Build Agreement and

General Conditions Between Owner and Design-Builder, § 11.5.2.2 (2011) (“TheDesign-Builder shall provide an Owners' and Contractors' Protective Liability



policy.84 While OCP coverage has the added bene�t of makingavailable to the additional insured separate coverage limits, somepolicy forms do not respond to general supervisory risks.IX. Subrogation Waivers

In contrast to additional insured coverage, the AIA devotes agood deal of language to waivers of subrogation. The AIA GeneralConditions Document contains �ve paragraphs pertaining to thissubject. The primary provision is § 11.3.7, which sets forth thescope of the waiver, the principal elements of which are:85

E The owner and contractor mutually waive all rights againsteach other and their subcontractors, sub-subcontractors,agents and employees;

E The waiver extends to the architect, its consultants and anyseparate contractors of the owner as described in Article 6(as well as their subcontractors, sub-subcontractors, agentsand employees);

E The waiver covers damages caused by �re or other causes ofloss to the extent covered by property insurance obtainedpursuant to § 11.3 or other property insurance applicable tothe Work;

E The owner and contractor, as appropriate, shall require sim-ilar waivers from the architect and its consultants, separatecontractors and subcontractors;86

E The waiver is e�ective notwithstanding any separate duty ofindemni�cation, contractual or otherwise;

E The waiver is e�ective even if the owner has failed to paythe insurance premium;

Insurance (“OCP”) policy with limits equal to the limits on CGL-speci�ed, orlimits as otherwise required by the Owner.”). It is a bit unclear whether thiscontract form requires both additional insured coverage and OCP, although thatwould be redundant. Yet, § 11.5.2 does not cast the requirement in thedisjunctive. Nevertheless, it is unlikely that both coverages are required. Theform describes the contractor's noti�cation obligation in the alternative: “Priorto commencement of the Work, Design-Builder shall provide either a copy of theOCP policy, or a certi�cate and endorsement evidencing that the Owner hasbeen named as an additional insured, as applicable.” ConsensusDocs No. 410,Standard Design-Build Agreement and General Conditions Between Owner andDesign-Builder, § 11.5 (2011).



86It is hard to imagine when it would be appropriate to secure waivers

from these entities, particularly the design professionals, as they are unlikely tosu�er loss for which property insurance will respond.

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E The waiver is e�ective whether or not the person or entityhad an insurable interest in the property damaged.87

Paragraph 11.3.5 extends the subrogation waiver to adjacentproperty if the owner separately insures the adjacent property.88

The owner acts as a �duciary in adjusting the loss.89 As a �du-ciary, the owner has the power to adjust and settle a loss withinsurers unless one of the parties in interest objects within �vedays after occurrence of the loss to the owner's exercise of thispower.90

Beyond the AIA's coverage of the subject, a few additional is-sues arise from time to time. They include:

1. Whether the waiver should be extended to suppliers;2. Whether the waiver should apply only to the property policy

expressly required under the parties' agreement rather thanto “other property insurance applicable to the Work”;

3. Whether the waiver should be triggered upon the actualrecovery of insurance proceeds rather than “to the extentcovered by property insurance” required under the parties'agreement;91

4. Should the waiver extend to any of the contractor's poli-cies?92

87AIA Document A201-2007, § 11.3.7.

88AIA Document A201-2007, § 11.3.5. Both §§ 11.3.5 and 11.3.7 state that

the “policies shall provide such waivers of subrogation by endorsement orotherwise.” It is not entirely clear what this language is intended to achieve.Presumably any such waiver would either be provided in the policy or“otherwise.” As the insurer has no greater right than the owner or contractor,the waiver is e�ective upon the execution of the construction contract. Itbehooves the parties to make sure that the policy does not contain a prohibitionagainst pre-loss subrogation waivers. Arguably, the waiver in the face of such apolicy prohibition exposes the insured to a breach of cooperation claim. Thestrength of such a claim is open for debate, given the prevalence of these waiv-ers in construction contracts.

89AIA Document A201-2007, § 11.3.8. The owner's obligation as a �duciary

extends to giving a bond upon request for proper performance of its duties. AIADocument A201-2007, § 11.3.9.

90AIA Document A201-2007, § 11.3.10.

91This inquiry is addressed in part to the issue of who is to bear the risk of

insurer insolvency.92

Liability insurers generally do not seek subrogation as their policies re-spond to fault. Paying policy proceeds on behalf of an insured because it com-mitted a wrong does not generate particularly travel-worthy shoes within whichto step to pursue subrogation. Nevertheless, in certain circumstances, such aswhere the insurer has paid more than the amount of damages attributable to



5. Does the waiver apply to deductibles?93

6. Should the waiver be conditioned upon the parties securingsimilar waivers from their subcontractors and consultants?94

Issues can arise as to the e�ect of failing to secure suchwaivers from others in the contracting chain. The partiesmay well wish to make it clear that any such failure has noe�ect on the subrogation waiver.

X. Coverage LimitsThe limits of coverage are determined on a project-by-project

and policy-by-policy basis, presumably based on some rational as-sessment of the risks involved. The general approach, which fol-lows the ACORD certi�cate of liability insurance form, calls forthe parties to make decisions with respect to the following limitsof coverage:

E General Liability Insurance† Each Occurrence $—————† Damage to Rented Premises $—————† Medical Expense (Any One Person) $—————

the insured's fault because of joint and several liability, subrogation might beappropriate. As for any property policy secured by the contractor to cover itsequipment, a subrogation waiver might well be appropriate.

93Deductibles, in contrast to self-insured retention (SIR) amounts, gener-

ally are paid by the insurer, who then seeks recovery of the deductible from thenamed insured. Self-insured retentions, on the other hand, are levels of lossthat the insured bears and the carrier has no responsibility for losses within theSIR. Unless the contract addresses deductibles elsewhere, the waiver of subroga-tion should address the question of deductibles. The owner makes the decisionon the size of deductible to carry. Large deductibles signi�cantly diminish thevalue of the coverage and, by extension, the subrogation waiver, for the contrac-tor. If one views this as a matter of choice, extending the waiver to deductiblesmakes sense. On the other hand, if one views the waiver from the perspective ofwho bears the loss—if an insurer, then the waiver operates; but not if theburden falls on the owner, then excluding deductibles from the waiver appearsappropriate. The AIA General Conditions insurance provision addresses thequestion of deductibles in § 11.3.1.1 by stating that “[i]f the property insurancerequires deductibles, the Owner shall pay costs not covered because of suchdeductibles.”

94The AIA clause does not characterize this conditional obligation (“as ap-

propriate”) as a prerequisite to an enforceable subrogation waiver and courtshave declined to so �nd. See North American Specialty Ins. Co. v. Payton Const.Corp., 80 Mass. App. Ct. 367, 953 N.E.2d 233 (2011), review denied, 461 Mass.1102, 958 N.E.2d 529 (2011) (failure of the general contractor to secure similarwaivers from its subcontractors did not, under the circumstances, invalidate thesubrogation waiver).

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† Personal & Advertising Injury $—————† General Aggregate $—————† Products-Completed Operations Aggregate $—————

E Automobile Liability Insurance† Combined Single Limit (Each Accident) $—————† Bodily Injury (Per Person) $—————† Bodily Injury (Per Accident) $—————† Property Damage (Per Accident) $—————

† Garage Liability (Any Auto) $—————† Auto Only (Each Accident) $—————† Other (Auto Only) (Each Accident) $—————† Other Than Auto Only (Aggregate) $—————

E Excess/Umbrella Liability Insurance† Each Occurrence $—————† Aggregate $—————

E Workers' Compensation Insurance† Statutory Limits $—————

E Employers' Liability Insurance† Each Accident $—————† Disease Policy Limit $—————† Disease Employee Limit $—————

E Pollution Liability Insurance (Claims Made orOccurrence)† Each Claim/Occurrence $—————† Aggregate $—————

E Professional Liability Insurance (Claims Made)† Per Claim $—————† Aggregate $—————

Construction contracts seldom set out a dollar amount as thecoverage limit for the property or builder's risk insurance. Usu-ally the contract requires the policy to be for the total value ofthe improvements on a replacement cost basis.95 Notwithstandingthis contractual requirement, it is quite common for propertypolicies to contain numerous sublimits. There are sublimits forloss caused by speci�c perils, such as �ood or earthquake. Othersublimits apply to speci�c coverages such as debris removal,covered property in transit, loss occasioned by ordinance or law,pollution clean-up, temporary structures, and landscaping.96

95See AIA Document A201-2007, § 11.3.1.




It is important to coordinate insurance with any contractuallimitations of liability. Contractual limitations of liability arecommon in construction contracts involving large projects. Theseprovisions limit the contractor's liability by placing a cap on thedamages that may be sought from it. The cap may be calculatedin a number of di�erent ways. It is not unusual for these liabilitylimitation provisions to contain a carve out for insurance.97

It is important to clearly draft the extent of the insuranceexception. There are two principal ways to go about this. Theconservative approach is to de�ne the insurance exception interms of the actual coverages required under the contract. If thecontract requires the contractor to secure $3 million (per occur-rence) in general liability coverage and that is the policy thatresponds to a particular loss, the extent of the applicable limita-tion of liability insurance exception is $3 million. The other wayto go about this is to characterize the insurance carve-out interms of the coverage available to the contractor. Under this ap-proach, where the contractor maintains a practice CGL policywith aggregate limits of $100 million and per-occurrence limits of$5 million, then the carve-out is $2 million greater than that af-forded under the more conservative approach, notwithstandingthe same $3 million contractual commitment.98 There arguably isa third approach which de�nes the insurance exception in termsof the amounts actually recovered rather than the availablecoverage. This approach places the risk of carrier insolvency andcompromised limits on the owner.XI. Excess And Umbrella Coverage

The typical construction contract has little to say about these

97The theory being that, as the owner has paid for insurance, it should

have access to it. Just how compelling this rationale is varies from project toproject.

98This analysis assumes no coverage issues nor applicable deductibles/

SIRs. As this simpli�ed example reveals, these insurance exceptions can be achallenge to draft. See Musgrove v. Southland Corp., 898 F.2d 1041, 1043 (5thCir. 1990) (“Citgo's purchase order contract with LCE obligated LCE to providecomprehensive general liability insurance of not less than $1 million per occur-rence for itself and Citgo. Because the International policy covers only thoselosses in excess of $1 million, that policy does not a�ord the coverage that LCE'scontract with Citgo required.”); Forest Oil Corp. v. Strata Energy, Inc., 929 F.2d1039, 1045 (5th Cir. 1991) (“Forest clearly was not obligated under the agree-ment to provide such excess insurance. It was only required to provide insur-ance with not less than $100,000/$300,000 primary coverage (and the Americanprimary policy wholly ful�lled any such obligation). Thus, Strata was not aninsured under the Southern excess policy and, therefore, was not entitled to thebene�ts of that policy.”) (emphasis added).

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coverages. The AIA General Conditions Document is a case inpoint. There is no reference to either excess or umbrellainsurance.99 This is largely due to the fact that, with the excep-tion of “contractual liability insurance” and “completed opera-tions” (both part of the standard CGL form), the AIA clauseidenti�es the exposure to be covered rather than speci�c policytypes. Excess (and, to a lesser degree, umbrella) coverage doesnot uniquely respond to any speci�c risk. Instead, the policyresponds to covered risks at loss thresholds beyond those in theprimary layer. Given this relationship between primary generalliability insurance and excess insurance, it is not uncommon forconstruction contracts to expressly state that CGL policy limitscan be satis�ed by any combination of primary general liabilityand excess insurance.100

On large projects (or smaller projects with large exposures),the general liability coverage losses are more likely to be satis�edin the excess layer than by the primary policy. Yet, constructioncontracts contain little or no guidance as to the requirements forexcess or umbrella coverage. On occasion, the contract will statethat the excess policy shall be secured on a “follow form” basis.101

This simply means that the excess policy shall contain the sameexclusions and coverage conditions as the underlying primarypolicy. In reality this is often not the case. A host of challengescan arise with respect to securing appropriate excess or umbrellainsurance:

1. Excess policies that contain signi�cantly di�erent exclusionsand conditions than the primary policy (in other words, theyfollow the form at a distance);

99These policies perform similar functions—providing additional layer(s) of

protection above primary limits. The term “umbrella” refers to a number offeatures common to this form. It can act as excess to more than one primarycoverage (e.g., auto and general liability). These policies are also more likely to“drop down” to �ll gaps in underlying coverages than pure excess policies, whichrespond upon exhaustion of underlying coverage. Some umbrella policies do not“follow form” of the primary, but are stand-alone policies. Other umbrella poli-cies contain a “broad as primary” endorsement that allows the umbrella to fol-low the primary form(s) without excluding any of the umbrella's extra cover-ages.

100See ConsensusDocs No. 410, Standard Design-Build Agreement and

General Conditions between Owner and Design-Builder, § 11.2.2 (2011)(“Employers' Liability, Business Automobile Liability, and CGL coveragerequired under subsection 11.2.1 may be arranged under a single policy for thefull limits required or by a combination of underlying policies with the balanceprovided by Excess or Umbrella Liability policies.”).

101See Bruner & O'Connor on Construction Law § 11:300 and 11:300.10.



2. Excess policies misidentify underlying coverages;102

3. Follow form endorsement converts umbrella to excess cover-age;103

4. Follow form endorsement is secured notwithstandingcontract requirement for “broad as primary” endorsement;104

5. Higher-level excess policies fail to specify the same underly-ing coverage;105

6. The “follow form” excess coverage contains “notwithstandinganything to the contrary” language applied to any inconsis-tencies between the excess and primary policies, with theexcess governing.106

102This can be a problem because excess coverage does not attach until the

scheduled underlying policies are exhausted. If the excess coverage “rides above”more than one underlying policy then confusion can arise as to when coverageattaches. See Bruner & O'Connor on Construction Law §§ 11:304, 11:304.10 and11:304.20.

103Umbrella policies often provide greater coverage than the underlying pri-

mary policy. Therefore, attaching a “follow form” endorsement to an umbrellapolicy creates confusion, as it suggests narrower coverage is a�orded thanshould be the case.

104This creates a similar problem to the follow form endorsement attached

to an umbrella policy—namely coverage is unintentionally narrowed. “Broad asprimary” endorsements are unique umbrella provisions that provide a numberof coverage enhancements including preventing exclusions in the underlyingpolicy from a�ecting the umbrella coverage. The “follow form” endorsement,however, has the opposite e�ect by narrowing coverage to that provided by theprimary policy.

105In this case, the “tower of coverage” begins to wobble as coverage layers

fail to add up. One variation on this theme is where higher excess policies fol-low lower umbrella policies rather than the primary policy. Another variation iswhere some excess policies will follow the “most restrictive” underlying policy.

106In this situation, the “follow form” coverage is a mere illusion except in

the rare instance where the excess policy terms mirror the underlying coverage.UnitedHealth Group Inc. v. Columbia Cas. Co., 836 F. Supp. 2d 912, 2011-2Trade Cas. (CCH) ¶ 77731 (D. Minn. 2011), where the drafters of the excesspolicies committed a number of sins. The court's frustration was apparent:

This is a di�cult case. The main problem with this case is that it centers on an insur-ance policy that is terribly written. As noted, Lexington was the primary insurer dur-ing the relevant time period, and all nine of the excess insurers, to one degree or an-other, followed form to the Lexington policy. Unfortunately, though, the thirty-pageLexington policy is not a standard policy that would be familiar to litigators andjudges. Instead, the Lexington policy was negotiated—provision-by-provision—byUnited and its many insurers. In negotiating the policy, the parties borrowed fromother policies, but they did so with little thought as to how the provisions they wereborrowing would work together when combined within a single policy. And, when theparties took pen in hand to write their own provisions, they drafted those provisionspoorly, often leaving the Court and the attorneys who are now representing the par-ties to wonder what the negotiators could possibly have had in mind. In short, then,

Journal of the ACCL


XII. Umbrella/Excess Liability ChecklistThe following is an umbrella/excess liability insurance checklist

that may be of relevance depending upon project speci�cs:E Complete and accurate schedule of underlying primary li-

ability policiesE Complete and accurate answers to all umbrella policy ap-

plication questionsE Pay on behalf of or indemnity contractE Minimum underlying primary liability limit requirementsE Defense costs in addition to the limit of liability107

E Status of following-form excess limitations, if any:† Contractual liability† Completed operations liability† Care, custody or control property damage† Explosion, collapse, or underground damage† Blasting, if any† Fire legal liability† Broad form property damage

E Status of wrap-up exclusions or limitationsE Joint ventures (past and present)E Punitive damages exclusionE DiscriminationE Asbestos exclusion or following-formE Notice of occurrence amended

the policy is a mess, chock full of provisions that are unclear, provisions that are clearbut absurd, and provisions that are clear but contradicted by other provisions thatare just as clear.

UnitedHealth Group Inc. v. Columbia Cas. Co., 836 F. Supp. 2d 912, 915, 2011-2Trade Cas. (CCH) ¶ 77731 (D. Minn. 2011). Following a poorly-drafted primarypolicy, as one might expect, can create problems for an excess carrier. In thiscase, the excess insurers argued that it would be absurd for them to provide thecoverages set forth in the underlying policy as it was essentially nonsense. Thecourt, however, had little sympathy for the excess insurers:

And yet these insurers agreed to follow form (more or less) to the Lexington policy.Given that the insurers committed the senseless act of agreeing to the entireLexington policy, it is hard to take seriously their argument that it would have beensenseless to agree to a particular provision within that policy. The “senselessness”bridge was crossed long ago. Clearly, these insurers did not read the Lexington policycarefully—or, if they read it carefully, they simply did not care that the plain languageof many provisions of the policy made them responsible for risks that insurers ordinar-ily do not assume.

UnitedHealth Group Inc. v. Columbia Cas. Co., 836 F. Supp. 2d 912, 917-18,2011-2 Trade Cas. (CCH) ¶ 77731 (D. Minn. 2011) (emphasis in original). Seealso Bruner & O'Connor on Construction Law §§ 11:300 to 11:309.




E Primary defense when not covered by underlying policiesE Amount of self-insured retentionE Comparison of personal injury liability de�nitions with com-

mercial general liability policyE Owned or non-owned aircraft liability coverageE Owned or non-owned watercraft liability coverageE Employee bene�t liability coverageE Foreign operationsE Policy dates consistent with underlying policiesE Coverage for newly-formed entitiesE Consideration of higher limits of liability in view of primary

aggregate limitsE Advance notice of cancellation by carrierE Broad form named insuredE Residual wrap-upE Contractor's limitation endorsement for property damage

limitations and professional exclusion.XIII. Workers' Compensation and Employer's LiabilityInsurance

Although this coverage is a major expense for contractors,construction law practitioners spend little time addressing it.108

Many construction contracts do little more than mandate thecoverage by name. Perhaps this is to be expected, given that allstates require a majority of employers to secure and maintainworkers' compensation coverage and the limits are statutorilymandated. Nevertheless, there are a few items worthy ofconsideration:

1. Is a waiver of subrogation by the workers' compensationcarrier required?

2. Are any of the contractor's employees subject to the Long-shoreman and Harbor Workers Act or any other maritimelaw or act? If so, coverage should be broadened to provideadequate protection.

3. How is the contractor to document coverage?4. Is there a concern that the contractor has inappropriately

characterized employees as independent contractors?The following checklist may be relevant, depending upon the

nature of the project:E Employer's liability limits

108For a general discussion of the coverage, see Bruner & O'Connor on

Construction Law §§ 11:298 and 11:299.

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E Review alternate rating plans, captive, self-insurance,deductibles, etc.

E Coverage applicable to all but monopolistic fund statesE Application of the Defense Base ActE Voluntary compensation coverageE Status of executive o�cers or partnersE Status of U.S.-based employees sent outside the countryE Foreign employeesE Aircraft endorsementE Repatriation expenseE Federal employers' liability coverageE Stop-gap employers' liability coverageE Workers' compensation deductibles, where permittedE Joint venture issues, including experience rating and pricingE Labor classi�cations and auditsE Overtime chargesE Owner-controlled, contractor-controller, or other wrap-up

programs, if applicableE Experience Rating Modi�erE Broad form named insuredE Coverage for newly-formed entitiesE Notice of cancellation termsE Blanket waiver of subrogation if required by contract.

XIV. Professional Liability InsuranceIf the contractor is providing professional services and, in par-

ticular, if it is providing such services beyond what is customarilyperformed in connection with typical “means and methods” activi-ties, the parties should discuss the need for some form of profes-sional liability insurance. At one end of the spectrum, the contrac-tor performs all or most of the design work, such as under adesign/build delivery model. In this case, it may be relevant todetermine whether the design services are to be furnished by thedesign/builder itself or by an architect or engineer acting as aconsultant to the design/builder. The Design-Build Institute ofAmerica (“DBIA”) makes such a distinction when setting forththe design/builder's insurance requirements.109 In either case, theparties are required to make an election: (1) is the professional li-ability policy to be written on a project-speci�c basis?; or (2) is

109See DBIA-Insurance Exhibit, Document No. E-Ins.-I (2d ed. 2010).



the coverage to be a�orded under the insured's practice policy?110

Project-speci�c policies provide separately-designated limits, butat a price. The DBIA Insurance Exhibit sets forth the followingrequirements for professional liability insurance:

1. If coverage is provided by a design consultant, the onlypermissible exclusion, limitation or restriction with respectto construction means, methods and techniques is one thatapplies only to their implementation by the design consul-tant or any sub-consultant. Moreover, the exclusion ispermissible only if such entities are not performing anyconstruction activities. The exclusion, however, cannot re-strict or limit coverage for the design of construction meansand methods.111

2. If coverage is provided by the design/builder, the policycannot contain any restriction or limitation pertaining toconstruction means and methods except that the policy canexclude coverage for such claims, where and only to thesame extent as coverage is provided by the design/builder'svalid and collectible commercial general liability/umbrellaexcess liability policies.

3. Any exclusion, limitation, or restriction related to productsor product design must be modi�ed to provide coverage forgoods or products installed.

4. The faulty work exclusion can only apply to the work self-performed by the design consultant or design/builder.

5. The policy must provide coverage for damages resultingfrom delays and cost overruns resulting from the renderingor failure to render professional services.

6. Waiver of subrogation is to be provided in favor of design/builder and owner, if commercially available.

7. Any coverage required to be maintained after �nal pay-ment is to be speci�cally set forth in the insurance exhibit.

110DBIA-Insurance Exhibit at §§ 1.1.3(A) & 1.1.3(B).

111Moreover, the general liability policy issued to the insured(s) providing

professional services shall contain no professional liability exclusions (or restric-tive endorsements) except for ISO endorsements CG 2279 or CG 2280, or theirequivalent. Endorsement CG 2279 de�nes “professional services” so as to notencompass services within construction means, methods, techniques, sequencesand procedures employed by a contractor in connection with its operations (andthus are not excluded). Exclusion CG 2280 is meant for design/builders and al-lows an exception for construction work performed by a contractor or on itsbehalf. These exclusions are more narrowly tailored than CG 2243, whichexcludes coverage for liability, arising out of the rendering or failure to renderany professional services by a contractor or an engineer, architect or surveyorwho was either employed by the contractor or performing work on its behalf.

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8. Professional liability coverage shall be retroactive to thedate that professional services �rst commenced.

9. If the professional liability coverage is provided on aproject-speci�c basis it shall include an extended reportingperiod of an agreed-upon number of years beyond the dateof substantial completion.

10. All claims-made policies, including professional liabilitycoverage, must: (a) permit reporting of circumstances thatcould give rise to a claim; and (b) provide coverage for post-expiration claims resulting from such circumstances.112

The ConsensusDocs Standard Agreement Between Design-Builder and Design Professional requires the design professionalto secure and maintain professional liability insurance on eithera practice policy or project-speci�c coverage form as elected bythe parties.113 Additional coverage requirements include:

1. A limitation on the amount of the deductible as elected bythe parties with the design professional being responsiblefor paying all deductibles.

2. The professional liability insurance shall contain prior actscoverage su�cient to cover all services performed by thedesign professionals. “These requirements” (presumably theprior acts coverage) shall continue in e�ect for a designatednumber of years after the date of substantial completion.114

3. The design professional is required to supply the design/builder with a copy of its professional liability policy (in ad-dition to a certi�cate of insurance evidencing the requiredcoverages).

4. The policy may not be cancelled or modi�ed without 30 days'prior written notice to the design/builder.

5. The design professional and its carrier shall notify thedesign/builder within 30 days of any claims made or loss ex-penses incurred against the professional liability policy.

112For a discussion of how the retroactive date operates under a claims-

made form as well as extended reporting or tail coverage, see Bruner & O'Connoron Construction Law §§ 11:283 and 11:284. For a discussion of various profes-sional liability coverage issues, see Bruner & O'Connor on Construction Law§§ 11:286 and 11:295.

113ConsensusDocs No. 420, Standard Agreement Between Design-Builder

and Design Professional, § 7.2.4 (2011).114

ConsensusDocs No. 420, Standard Agreement Between Design-Builderand Design Professional, § 7.2.4 (2011). For a discussion of “prior acts” coverageor the elimination of a retroactive date condition, see Bruner & O'Connor onConstruction Law §§ 11:282, 11:283 and 11:291.



6. The design/builder has the right to notify the carrier of anyclaim against the policy.

7. The professional liability coverage shall continue in e�ectfor a designated number of years following �nal payment tothe design professional.115

The following is a professional liability checklist:E Blanket program or single projectE Claims madeE Notice requirementE Policy territoryE Negligence requirementE Scope of covered servicesE Extended reporting provision (one to three years)E Defense included or in addition to limitsE Faulty workmanship modi�edE PollutionE Subrogation issuesE Punitive damagesE Disputes over professional negligenceE Warranties116

E IndemnityE DiscriminationE Insured vs. insured exclusionE Consequential damages exclusion.

XV. Pollution Liability InsuranceGiven the unpredictable coverage a�orded construction pollu-

tion exposures under the CGL policy,117 it is often prudent for theconstruction team to secure pollution liability insurance.118 Thereare many types of pollution-related insurance policies. Some ofthe more common forms include:

E Pollution legal liability insurance

115ConsensusDocs No. 420, Standard Agreement Between Design-Builder

and Design Professional, § 7.2.5 (2011). If taken literally this is di�cult toachieve where coverage is a�orded under a practice policy. Securing a project-speci�c “tail” under a practice policy is a di�cult feat. It is probably bestconstrued as a contractual commitment to continue to purchase similar cover-age in the future. If a project-speci�c policy is secured, it must address thesepost-completion loss exposures.




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E Commercial pollution legal liability insuranceE “Cleanup cost cap” or “stop loss” or “cost containment” insur-

anceE Contractors' pollution liability and errors and omissions

insurance.Most of the coverages are written on a claims-made form. To theextent that Contractors' Pollution Liability Insurance is availableon an occurrence-based form (it is one of the few environmentalpolicies with an occurrence form version), at a commercially rea-sonable rate, it is preferred over the claims-made form.119

The obvious coverage for the contractor to secure is a Contrac-tors' Pollution Liability policy. This insurance provides coveragefor bodily injury and property damage (including clean-up) frompollution conditions arising out of covered operations performedby the insured or its agents on another's real property. Thesepolicies also may a�ord coverage for pollution arising out ofprofessional services rendered by the contractor or its agents.The coverages are available on either a practice basis or a project-speci�c form. Project-speci�c coverage is preferable for projectswith signi�cant pollution exposures, as there are dedicated limitsfor covered project losses.

Contractors' pollution liability is often coupled with an errorsand omissions coverage part. As is the case with all E&O insur-ance, this coverage part is written on a claims-made basis and isstructured to cover a consultant's failure to discover contamina-tion during a Phase I or Phase II audit. The policy also respondsto negligent design of a remediation system. This coverage partplays a limited role in construction activities.

The following is a checklist for pollution coverage:E Admitted vs. non-admitted carrier120

E Insured's consent required for emergency response expense?E Are o�-site conditions covered?E Are legal defense costs available?E Coverage for mold?E Coverage for punitive damages resulting from pollution li-

ability?

119For a discussion of the advantages and disadvantages between these

forms, see Bruner & O'Connor on Construction Law §§ 11:281 to 11:285.120

Many states require insureds to secure coverage from admitted insurancecompanies, unless coverage is not available from the admitted insurance mar-ket. Selecting coverage from an admitted insurer provides the policyholderprotections not a�orded from the surplus lines market, such as access to StateGuaranty Funds in the event of carrier insolvency, and does not require thepolicyholder to pay surplus lines taxes and fees.



E Coverage for transportation pollution liability and non-owned site disposal?

E Coverage for pollution incidents created by loading orunloading vehicles?

E Coverage for generation, transportation, storage or disposalof pollutants?

E Coverage for government-mandated clean-up operations?E Recti�cation coverage?E Agency and at-risk construction management covered?E Coverage with joint ventures with design �rms?E De�nition of “bodily injury” expanded to address environ-

mental exposures?E De�nition of “property damage” expanded to include diminu-

tion in value of real property?E Coverage for environmental indemnity?E Exclusion for insured's owned, leased, or operated property?E Is the insurance primary or excess to other potentially avail-

able coverage (e.g., CGL insurance)?E Is notice of a claim “as soon as practicable” or “immediate”?E Severability or separation of insureds provision where more

than one insured a�orded coverage?E Natural resource damages covered?

XVI. Carrier Financial ThresholdsThe AIA provision does not place any restrictions on the insur-

ers that may provide property insurance except they must be“lawfully authorized to do business in the jurisdiction in whichthe project is located.”121 The AIA is agnostic when it comes toinsurer �nancial integrity. The contractor's liability insurancemay also be secured from any company or companies “lawfullyauthorized to do business in the jurisdiction in which the projectis located.”122 It is not uncommon for parties to specify minimum�nancial thresholds for carriers. Perhaps the most commonmethod for accomplishing this is to specify a speci�c �nancial-strength rating published by A.M. Best. Best's Financial StrengthRatings (FSR) represent the company's assessment of an insurer'sability to meet its obligations to policyholders. The FSR ratingscale includes six “secure” ratings:

E A++, A+ (Superior)E A, A- (Excellent)

121AIA Document A201-2007, § 11.3.1.

122AIA Document A201-2007, § 11.1.1.

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E B++, B+ (Good)XVII. Evidence Of Coverage

Many insurance provisions require the contractor to provideevidence that it has secured the required coverages. This is donemost frequently by requiring the submission of a “Certi�cate ofInsurance.” An ACORD certi�cate is the form of choice. The AIAGeneral Conditions Document states:

Certi�cates of insurance acceptable to the Owner shall be �led withthe Owner prior to commencement of the Work and thereafter uponrenewal or replacement of each required policy of insurance. Thesecerti�cates and the insurance policies required by this Section 11.1shall contain a provision that coverages a�orded under the policieswill not be canceled or allowed to expire until at least 30 days' priorwritten notice has been given to the Owner. An additional certi�-cate evidencing continuation of liability coverage, including cover-age for completed operations, shall be submitted with the �nal Ap-plication for Payment as required by Section 9.10.2 and thereafterupon renewal or replacement of such coverage until the expirationof the time required by Section 11.1.2. Information concerningreduction of coverage on account of revised limits or claims paidunder the General Aggregate, or both, shall be furnished by theContractor with reasonable promptness.123

Given that these certi�cates are actually poor vehicles forevidencing the existence of coverage, it is remarkable that par-ties place as much reliance on them as they do.124 Given thelimited evidentiary value of certi�cates of insurance, owners are

123AIA Document A201-2007, § 11.1.3.

124The forms generally are �lled out by an insurance broker, who may or

may not have authority to bind the insurer. The form, and in particular theACORD form, expressly disavows any ability to bind the insurers identi�ed onthe face of the certi�cate. For example, ACORD Form 25 (2001/08) states:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY ANDCONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER, THIS CERTIFICATEDOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THEPOLICIES BELOW.

As for the description of the a�orded coverages, the form states:THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THEINSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITH-STANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACTOR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAYBE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLI-CIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONSAND CONDITIONS OF SUCH POLICIES. AGGREGATE LIMITS SHOWN MAYHAVE BEEN REDUCED BY PAID CLAIMS.

Thus, the certi�cate is a representation by the party responsible for its comple-tion, that the coverages described (in general terms only) in the certi�cate havebeen issued. As one New York court put it:



with increasing frequency giving themselves the option to requestthe production of the policies themselves in addition to acerti�cate. The standard forms have yet to follow suit.125

Another common feature of the standard contract forms is therequirement that the owner be a�orded thirty days' notice beforeany coverage cancellation or non-renewal occurs. The standardforms diverge a bit on who is responsible for providing this notice.The DBIA Insurance Exhibit places the obligation on the design/builder:

Design-Builder shall provide owner with prior written notice of anycancellation or non-renewal of the design consultant's practicepolicy and shall include in the design consultant agreement a provi-sion requiring the design consultant to give the Design-Builder 30Days written notice of any cancellation or non-renewal.126

By contrast, the ConsensusDocs and AIA contract forms requirethe policies contain a provision mandating the 30-day notice.127

This obligation is more likely honored in the breach than

A Certi�cate of Insurance is merely evidence of a contract for insurance, not conclusiveproof that the contract exists, and not, in and of itself, a contract to insure. On sum-mary judgment, a certi�cate may be su�cient to raise an issue of fact, especiallywhere additional factors exist favoring coverage, but it is not su�cient, standingalone, as it does here, to prove coverage as a matter of law.

Main Street America Group v. Everest Nat. Ins. Co., 31 Misc. 3d 514, 918N.Y.S.2d 283, 285 (Sup 2011). See also Bruner & O'Connor on ConstructionLaw §§ 11:171 and 11:172.

125See AIA Document A201-2007, § 11.1.3; ConsensusDocs No. 415, Stan-

dard Design-Build Agreement and General Conditions Between Owner andDesign/Builder, § 10.2.4 (Nov. 2009) (“Prior to commencement of the Work,Design/Builder shall furnish the Owner with certi�cates evidencing the requiredcoverage.”); DBIA Document No. E-Ins-I, § 3.1.1 (2d ed. 2010) (“Design/Buildershall furnish to owner a copy of all Certi�cates of Insurance showing the Owneras additional insured as set forth above.”).

126DBIA Document No. E-Ins-I, Insurance Exhibit: Design-Builder's Insur-

ance Requirements, § 1.1.2(A) (2010).127

See AIA Document A201-2007, § 11.1.3 (“The certi�cates and the insur-ance policies required by this section 11.1 shall contain a provision that cover-ages a�orded under the policies will not be cancelled or allowed to expire untilat least thirty days' prior written notice has been given to the Owner.”);ConsensusDocs No. 415, Standard Design-Build Agreement and General Condi-tions Between Owner and Design-Builder, § 10.2.4 (Nov. 2009) (“The policies ofinsurance required under Subparagraph 10.2.1 shall contain a provision thatthe coverage a�orded under the policies shall not be cancelled or allowed toexpire until at least thirty (30) days prior written notice has been given to theOwner.”). It is a big vague as to whether these provisions require the insurer toprovide the notice or if notice is to be provided by the insured. Given theinterests the insurer has in cancelling coverage, particularly if the insured hasfailed to pay the requisite premium, it is unlikely that the provision would leave

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otherwise as insurers are loathe to take on the administrativeburden of providing notice of cancellation or non-renewal toanyone other than the named insured.128

it to the insured to trigger the noti�cation condition upon which cancellationdepends.

128After 2009, the ACORD form changed its language with respect to notice

of cancellation. The old text stated that the insurer will “endeavor” to mail writ-ten notice to the certi�cate holder named on the form. The new text states:“Should any of the above-described policies be cancelled before the expirationdate thereof, notice will be delivered in accordance with the policy provisions.”This change is in keeping with the overall philosophy that the ACORD formdoes not change or alter the obligations of the parties to the insurance contract.

