Contract documents

November 3, 2022

One of the best ways to manage risk on construction projects is through insurance and bonds. Throughout the next several weeks, the AIA Contract Documents Program is going to release a series of articles pertaining to construction insurance. This is Part 1: Overview.

Basic Insurance Requirements for Owners and Contractors

In the agreement between the owner and contractor, those parties will typically decide which types of insurance will be required for their project, who will procure that insurance, and for what amounts and how long the insurance will be in place. It is usually a contract requirement that, upon request, the parties provide each other with a copy of the insurance policy or policies they’ve obtained. This is a best practice – requesting and reviewing a copy of the other parties’ insurance policies will ensure that there is coverage in the event of a loss. It is much better to discover an oversight at the onset of the project rather than after a loss.

Usually, but not always, the owner will procure the property insurance for the project, in the form of a “builder’s risk” policy. Although we will discuss this type of insurance in greater detail in a subsequent article, builder’s risk insurance is, at its core, property insurance that insures against loss to the project before it is complete. The owner is also typically required to maintain the owner’s “usually general liability insurance.”

The contractor typically will procure general liability insurance, and any other specific insurance that is needed for that project. The contractor will also usually be required to obtain payment and performance bonds, which will be discussed in a future article.

Do AIA Contracts Contain Insurance Requirements?

Yes. For example, in the most recent version of the flagship A201-2017 General Conditions, the AIA Contract Documents program carved out the insurance language and placed it in a separate exhibit to A101-2017. The AIA Documents Committee originally developed an insurance exhibit for the Owner/Design-Builder agreements in 2014 to allow for flexibility in developing insurance requirements for any particular construction project and to allow for adaptation to changes in the insurance market. Thereafter, the Committee noticed the same needs applied to AIA’s conventional documents and developed a new and comprehensive insurance exhibit for use in conjunction with the A101™–2017, A102™–2017, and A103™–2017 documents.

This approach also resulted in substantial revision of Article 11(Insurance and Bonds) of A201.  The intent of using an exhibit – as opposed to incorporating the terms of the exhibit into the text of A201 – is to facilitate the user’s ability to transmit the insurance exhibit to the user’s insurance advisor or broker for evaluation and completion. It also allows the AIA to update insurance requirements, if necessary, to keep up with industry and market changes, without revising the General Conditions document. In addition, an exhibit facilitates customizing insurance requirements.

How to Manage Risk Using Construction Insurance & Bonds – Part 2: Builder’s Risk

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.