Construction and Contractors Insurance in 2022

 There is something fascinating about watching a new building rise up from the ground and grow into a complex structure of glass and steel.  Investment in these projects can be significant, which is why implementation of Construction or Contractors insurance as well as proper risk management techniques is necessary. 

From the time the General Contractor (GC) is selected, the GC traditionally assumes the responsibility for vetting and hiring the trade contractors that will be on site completing work in their respective areas.  This creates a lot of moving parts, with different game plans, and exposes the project to areas of risk that need to be identified, addressed and properly managed.

Successful companies in the design, build & and deliver space need to have a firm understanding of the risks involved, proper mitigation strategies, and the role of a contractors insurance program.  Some of the larger firms will have their own risk management department to assess risk and manage their insurance program, but, for the majority of contractors, it is important to hire an insurance broker that can educate and provide guidance on how to manage the flow of risk through insurance and implementation of best practices.

1. What are some notable insurance policies that make up a contractors insurance program?
2. Why do General Contractors insist on Subcontractor Agreements
3. What does Additional Insured status mean?
4. Are there different types of Additional Insured endorsements?
5. How does Primary and Non-Contributory apply?
6. What is a Waiver of Subrogation? 

What are notable insurance policies that can make up a contractors insurance program?

• General Liability: Protects against financial loss associated with bodily injury and property damage to third parties.
• Commercial Auto: Provides protection against property damage, liability, and medical costs if you are in an accident. Hired and Non-Owned Auto coverage is needed if the business utilizes employee vehicles (even if incidental) or rents vehicles.
• Umbrella / Excess Liability: Provides coverage in excess of the underlying liability policies’ aggregate limits. Underlying polices could include General Liability, Auto Liability, Employers Liability, among others.
• Inland Marine: Covers the risks related to property and equipment that’s either in transit or being stored by a third party.
• Builders Risk: Intended to provide protection for buildings and structures that are under construction.
• Workers Compensation: Protects employers and employees in the event of employee injury, covering medical bills, care costs, and a portion of lost wages.
• Owner Controlled Insurance Program (OCIP): Also known as a wrap-up, enables a project owner to sponsor and control the entirety of the project’s insurance program including the work of the general contractor and subcontractors involved, under one policy. Typically, OCIP policies cover Workers Compensation, General Liability, Excess Liability, Errors & Omission, and Builders Risk insurance. 
• Contractor Controlled Insurance Program (CCIP): Under a CCIP, the general contractor sponsors and controls the program, including the subcontractors work. The project owner maintains their own coverage.

Why do General Contractors insist on Subcontractor Agreements?

General or Prime Contractors (GC) are hired directly by the developer or property manager. They serve as the contractor of record to manage the overall project lifecycle and are responsible for the hiring and supervision of the trade and specialty contractors completing work in their respective areas of expertise.  An important risk control tool to protect the GC and project sponsor from the actions of the subs is through the use of a Subcontractor Agreement.  Standard agreements like the AIA A401 are designed to help protect the GC from liability as result of the negligence of their subcontractors. The contract contains language protecting the upstream parties from damages caused by ‘work’ of a subcontractor.  A Subcontractor Agreement is agreed to and signed laying out the terms and conditions including parties that need to be indemnified and held harmless. This is traditionally done by providing additional insured status in a variety of ways that we will explore.

What does Additional Insured status mean?

Most subcontractor agreements include provisions requiring their subs provide evidence of General Liability coverage and name the GC as an Additional Insured (AI). The expectation is that by obtaining AI status, they will be protected in the event that the GC is named in a suit for a claim related to the subcontractor’s work and/or presence on the job site.  The AI status is not the same as a Named Insured, meaning the entity the subcontractor’s policy was written for.  This status is for an affiliate of the subcontractor who will not be able to make policy changes.

Are there different types of Additional Insured endorsements?

Some GC’s will simply require to be added as an ‘Additional Insured’ and accept a certificate of insurance as proof of coverage as long as the AI box is checked off, however, most larger GC’s and development firms with an understanding of contractual risk transfer will usually request specific Additional Insured forms.

• CG 2010 04 13 Owners, Lessees, or Contractors – Scheduled Person or Organization  Coverage for ongoing operations only, there is no coverage for claims resulting from occurrences after project completion.  The endorsement does not afford blanket coverage, meaning each Additional Insured will need to be specifically named.
• CG 2037 04 13 Owners, Lessees, or Contractors – Completed Operations  Coverage for completed operations only, there is no coverage for claims resulting from occurrences prior to a project’s completion.  The endorsement does not afford blanket coverage, meaning each Additional Insured will need to be specifically named.
• CG 2033 04 13 Owners, Lessees, or Contractors – Automatic Status When Required in Construction Agreement with You  Coverage for ongoing operations only, there is no coverage for claims resulting from occurrences after project completion.  The endorsement contains blanket status, meaning Additional Insured do not need to be named specifically.
• CG 2038 04 13 Owners, Lessees, or Contractors – Automatic Status For Other Parties When Required in Written Construction Agreement  Coverage for completed operations only, there is no coverage for claims resulting from occurrences prior to a project’s completion.  The endorsement contains blanket status, meaning Additional Insured do not need to be named specifically.

How does Primary and Non-Contributory apply?

The “primary and noncontributory” wording has two parts as mentioned.  Primary means the subcontractor’s General and Excess Liability insurance must pay first without seeking the general contractor’s liability insurance to pay the claim. Noncontributory prevents the primary insurer from seeking contribution from the other entity’s policy when paying a claim.

What is a Waiver of Subrogation?

Subrogation is a basic insurance concept used in construction and contractors insurance policies. Typically, an at-fault party’s insurance carrier is liable for the cost of a loss.  The insurance carrier can then choose to sue another at-fault party to the amount or partial amount of the claim they paid.  This process of recovering funds from a third party is called subrogation.  The waiver of subrogation waives the carriers right to subrogate from a third party (GC or Project owner) that had entered into this agreement prior to the claim’s occurrence.

It’s important to partner with a firm that has the expertise to understand your construction operation and its unique exposures.  The team at Biscayne Risk Group specializes in  designing construction and contractors insurance programs and is ready to show you what differentiates our level of service.

Biscayne Risk & Insurance Group can help guide you through the insurance buying process.  Contact us at 561.571.1001, quotes@biscaynerisk.com, or via our contact form.