By Susan Van Bell, Esq., AIA Contract Documents Content Contributor
Interested in getting unlimited access to our full 250+ library of agreements and forms?
Visit the link below to learn more: https://shop.aiacontracts.com/unlimited-subscription
June 16, 2022
When undertaking a construction project, understanding the various types of insurance and bonds is essential to safeguard your interests. Whether you’re an owner, contractor, or architect, knowing which coverages are necessary can ensure your project is properly protected. This guide provides a breakdown of the most crucial insurance policies and bonding requirements in construction.
Construction projects involve numerous risks, from injuries to property damage. Insurance acts as a safety net to protect all parties involved. Below, we outline the types of insurance that architects, contractors, and owners should have.
Architects play a pivotal role in construction projects, and having the right insurance is essential. Here are the key coverages architects should carry:
This insurance covers third-party claims for personal injury or property damage arising from your business operations. For architects, it protects against accidents on-site or due to their work.
If the architect uses a business vehicle, this coverage protects against liability from accidents involving those vehicles.
Required by law, this insurance covers injuries sustained by employees during work. If a contractor or other worker is injured on-site and is not covered by their own insurance, the property owner could be liable.
This is one of the most important policies for architects. It covers claims related to errors or omissions in the architect’s professional services, such as mistakes in designs or failure to meet project specifications.
Ensure that your architect has the appropriate insurance coverage and that your contract specifies the amounts. Smaller contracts may not detail coverage, so it’s essential to ask for confirmation from the architect.
Contractors, like architects, should also carry a variety of essential insurance coverages. Here’s what to look for:
This coverage protects against third-party claims for personal injury or property damage caused by the contractor’s work.
Covers accidents involving business vehicles, similar to the coverage required for architects.
These policies provide coverage for employees injured while working on the construction site, which is critical to avoid potential liability issues.
Builder’s risk insurance covers damage to the construction project while it’s under development, such as fire, theft, or vandalism.
If the contractor is offering design services, professional liability insurance is necessary to cover claims related to errors in design.
Some jurisdictions require contractors to post their insurance coverages publicly, which can help ensure transparency and accountability. Additionally, specialized insurance, such as pollution insurance, may be required depending on the scope of the project.
As the property owner, you must also protect your interests during the construction process. Here’s the essential coverage you need:
This insurance protects the owner from liability arising from accidents or injuries on the construction site.
Property insurance ensures that your property is protected in the event of damage or destruction. For residential projects, ensure that the coverage is sufficient to cover the replacement value of your property, particularly in cases where the contractor’s builder’s risk insurance may not apply.
Before finalizing contracts, consult your insurance agent or broker to ensure all parties have the correct coverages and that their insurance limits are appropriate for the project’s scale.
Being “bonded” is a critical component of construction projects. Most states require contractors to be licensed and bonded. A bond provides financial protection if the contractor fails to complete the job.
State-required bonds are typically issued by surety companies, and these bonds provide funds to finish the project if the contractor defaults. Note that bonds differ from insurance policies in that they don’t cover accidents or damages but instead protect the project’s completion.
If your project is high-budget, you may want to consider requiring additional bonds with higher limits than the state’s minimum. This provides extra protection, but ensure you negotiate who will bear the cost.
Construction insurance and bonds are vital tools for managing risk and protecting the interests of owners, contractors, and architects. While they may not be as exciting as choosing materials or designing spaces, these financial safeguards are essential for a smooth, successful project.
Before starting your construction project, consult with your insurance adviser, attorney, or other relevant professionals to ensure you have the right protections in place. With the right insurance and bonding coverage, your project can proceed with confidence.
Susan Van Bell, Esq. was Senior Director of Content for AIA Contract Documents for over ten years. She is currently a consultant.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.