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One of the most important provisions in any construction contract, and also one of the most overlooked, is the insurance clause. This article will address some issues for you to consider as you draft or revise the insurance section in your construction contract.
At a minimum, the general contractor should require its subcontractors to carry worker’s compensation insurance, employer’s liability coverage, and commercial general liability insurance. Additionally, you should consider requiring the subcontractor to carry automobile liability insurance as well as an umbrella liability policy to increase the insurance limits under the commercial general liability policy and automobile liability policy.
The amount of insurance coverage that you should require from your subcontractor should be evaluated on a case-by-case basis with consideration given to the type of risks involved in a particular construction project.
An additional type of insurance that is frequently forgotten is professional liability coverage. If the subcontractor’s scope of work includes any design obligations that require the subcontractor to do any of the design work for the project, you need to require professional liability insurance coverage to cover liabilities arising from the defective design of subcontractor’s work. Please be advised that subcontractor’s commercial general liability policy will not provide coverage for design defects in subcontractor’s work.
With respect to the commercial general liability insurance that you require of your subcontractors, please also consider requiring the policy to include contractual liability and completed operations coverage, as well as other coverage which may be needed as a result of the specific scope of work being performed by the subcontractor.
Finally, please assure yourself that there is sufficient property insurance to cover the damage or destruction of the work. The property insurance is normally carried either by the owner or by the general contractor, but you always need to review and evaluate whether this risk has been adequately insured.
There may be additional types of insurance policies that you want to require from your subcontractors on a case-by-case basis. If you have any questions regarding the insurance requirements contained in your construction contracts, you should seek legal advice.