KANSAS CITY, Mo., Dec. 10, 2014 /PRNewswire/ -- You may face an uphill legal battle if you enter a construction contract without paying careful attention to every detail. Insurance carriers are implementing restrictive additional insured endorsements that inhibit the ability of owners and general contractors to transfer contributory negligence. In response, owners and general contractors have toughened the insurance requirement language in their construction contracts.
"There is a wide array of words and phrases that trip people up when looking at the insurance requirements in construction contracts," said Diane Bureman, Senior Vice President and Senior Account Executive with Lockton Companies. "It is important that the insurance terms addressed in the construction contract are completely clear and ones with which you can comply."
"Additional Insured vs. Additional Named Insured": "Additional Insured" limits incidents related just to your work. "Additional Named Insured" could cost you coverage for liabilities and/or exposures beyond your control.
"Maintain vs. Provide": "Maintain" provides insurance covering the time frame agreed upon in the contract. "Provide" may force you to implement a Controlled Insurance Program or purchase Project-Specific Insurance.
"Notice Requirements": Notice of cancellation is rarely provided by insurance companies. Contractors may agree to provide notice of change, modification, or nonrenewal if they want to assume this responsibility.
"Subject to Policy Terms, Conditions, and Exclusions": It is important to understand that your policies may not be as broad in coverage as you, or the contract draftee, might anticipate. Contractual liability coverage is subject to policy terms, conditions or exclusions.
"Aggregate Limits": This describes the maximum dollar amount the insurer will pay to settle all claims arising from incidents that occur during the policy period. However, the standard Commercial General Liability policy usually includes two different types with two different meanings: the General Aggregate and the Products/Completed Operations Aggregate.
While these five phrases represent a small number of the many issues that may present themselves with reviewing a construction contract, it is important to never make assumptions when insurance requirements are unclear.
"Every word and punctuation mark in a contract counts, so read everything literally," advises Bureman. "The best way to ensure you are properly covered is by verifying the insurance requirements with an insurance broker or legal counsel with an in-depth knowledge of the intricacies of construction and insurance before moving forward."
More than 5,300 professionals at Lockton provide 41,000 clients around the world with risk management, insurance, and employee benefits consulting services that improve their businesses. From its founding in 1966 in Kansas City, Missouri, Lockton has attracted entrepreneurial professionals who have driven its growth to become the largest privately held, independent insurance broker in the world and 10th largest overall. Independent researcher Greenwich Associates has awarded Lockton its Service Excellence Award for risk management for large companies. For six consecutive years, Business Insurance magazine has recognized Lockton as a "Best Place to Work in Insurance." To see the latest insights from Lockton's experts, check Lockton Market Update.