If you’re a contractor, you know that when it comes to construction contracts, insurance requirements are never really standard. As I’m sure you can attest, this creates issues and can make it extremely difficult to know what you should be procuring on a regular basis for your coverage to be compliant. This costs time and money…two things that are precious to any business person. But, there’s some good news…enter Exhibit A.

The American Institute of Architects (AIA) Contracts has published the 2017 Exhibit A, Insurance and Bonds document that could help alleviate some of the guesswork for those who use the AIA almost exclusively. This insurance provision includes greater specificity in what coverages are necessary, limits, duration of coverage, perils to insure against, who should procure, and allows for additional choices to be made with respect to insuring the project. The document is also a great way to get all parties on a project talking about risk early and the best way to manage and/or transfer that risk.

There are a lot of changes in Exhibit A, but for the purposes of time, I’m going to simply summarize the key ones.

Owner-Required Insurance

Section A.2 sets for the owner-required insurance, including property insurance (i.e. builder’s risk) unless the option to have the contractor to procure is selected in section A.3.3.2.1. I know, that’s a lot of legalese. To break it down, this section includes detail on the type of risk to insure against, special causes of loss to provide for, and specific required coverages, including coverage for ensuing loss or resulting damage from error, omission, or deficiency in the construction methods, designs, specifications, workmanship, or materials. It also addresses deductibles, occupancy, existing structures, and provides for optional extended property insurance, such as:

• Loss of Use, Business Interruption, and Delay in Completion Insurance;
• Ordinance or Law Insurance;
• Extra Expense Insurance;
• Civil Authority Insurance;
• Ingress/Egress Insurance; and
• Soft Costs

Contractors beware, though, as there are some items in this section you should be paying particular attention to if you’re chosen to carry the builder’s risk. These include, but aren’t limited to, coverage for existing structures and the potential continuation of the policy through the period of correction (A.2.3.1.3). Note that this is different than what many builders’ risk policies provide for.

Contractors Insurance and Bonds

Section A3 sets out the specific requirements for Contractors Insurance and Bonds. There’s a certificate of insurance requirement, deductibles and self-insured retentions need to be identified to the owner, and additional insured obligations that are significantly clearer than what was provided in the 2007 series documents. What’s most troublesome under this section is the expressly prohibited policy language that isn’t allowed, and some of these should be discussed with the drafter of the insurance exhibit as to what’s really applicable to the project, what’s not, and what can actually be amended to fit the situation. Some examples include:

• Prohibiting an Insured V Insured exclusion, a.k.a. no cross-liability exclusion. There are many carriers that attach this to the Commercial General Liability and Excess/Umbrella policies. The best advice? Dig in and discuss with the owner what they’re really wanting to avoid. If the contractor doesn’t have an Insured V Insured exposure on the job, is the owner really concerned about invalidating the additional insured coverage that’s required?
• Prohibiting prior work and/or prior injury endorsements. These are sometimes on a policy when a contractor has an expertise or specialty trade that makes insurance hard to place. It can be a geographic issue based on state-specific experience in a particular type of loss.
• Prohibiting exclusion related to the exterior insulation finish systems (EIFS) or similar exterior coatings where the work involves such coatings or surfaces. Contractors pay attention to the materials used in the project, and just because you may be subcontracting the work doesn’t mean you’re off the hook for the exposure or this requirement. Watch your own exclusions — some are quite broad, much broader than Insurance Services Offices (ISOs). Think about the applicability of the additional insured endorsement you’ll be providing via this contract when you have an exclusion on your policy.
• Prohibiting exclusion restricting or eliminating coverage for damages due to earth subsidence or movement. I’d suggest having the same discussion and thought process as discussed for the EIFS above.

This contract specifically states the required limits can be procured through a combination of primary and excess insurance, and the excess policy “shall not require the exhaustion of underlying limits only though the actual payment by the underlying insurers.” This could be an issue. Check your excess policy to make sure your insurance coverage complies with this requirement.

New, Optional Requirements

Also, completely new to this document are the optional requirements for the following to be procured:

• Cyber Security Insurance;
• Railroad Protective Liability Insurance;
• Asbestos Abatement Liability Insurance;
• Physical damage to property while in storage and in transit to the site, including the type of perils to insure against; and
• Property insurance, including the type of perils to insure against and covering property owned by the contractor and used on the project.

Again, I’ve just summarized some of the key insurance items to be aware of and watch for when using the AIA Insurance and Bonds Exhibit. There are a lot of other pieces to this I encourage you to review. But, this document is a great example of how insurance is key to managing risk on a construction project and how parties should be discussing the risk and the best possible ways to manage and/or transfer it.

If you have any questions about these changes or simply how to navigate the risks of construction and your contracting exposure, don’t hesitate to reach out to us. We’re here to help and have numerous experts who can give you the exact answers you need.