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A101-2017 Standard Form of Agreement Between Owner and Contractor
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March 6, 2023
Managing risk effectively on construction projects is critical, and one of the best ways to achieve this is through insurance and bonds. As part of our ongoing series on construction insurance, we explore key differences between “claims made” and “occurrence” insurance policies—two critical components of construction risk management.
What is the Difference Between Claims Made and Occurrence-Based Policies?
The primary difference between these two types of insurance policies lies in the time period they cover. Understanding this distinction can help contractors ensure they are fully protected during the necessary periods of their projects.
Claims Made Policies Explained
A claims made policy covers claims that are made during the policy period, regardless of when the event causing the claim actually occurred. This means that if a claim is filed within the policy period, it will be covered, even if the event took place before the policy’s inception.
Professional liability policies, particularly for design professionals, are typically written on a claims made basis. These policies ensure that if an issue arises during the construction phase but is reported later, the claim will still be covered, as long as it falls within the policy period.
Occurrence Based Policies Explained
In contrast, an occurrence based policy covers any event or occurrence that happens during the policy period, regardless of when the claim is made. This means that if a claim arises after the policy ends, as long as the event occurred during the coverage period, it will be covered.
Commercial general liability (CGL) and property insurance policies are generally written on an occurrence basis. These policies provide long-term peace of mind, as they protect against claims resulting from events that happen during the policy period, even if the claim itself is made after the policy expires.
How to Choose the Right Insurance for Your Construction Business
Choosing the right insurance policy for your construction business depends on the nature of the project and the risks involved. Here are some key considerations:
- For design professionals, a claims made policy is often required to ensure long-term coverage for any errors or omissions during the design phase.
- For contractors and property managers, occurrence-based policies like commercial general liability and property insurance are typically essential for protecting against on-site accidents and property damage.
Understanding your project needs and the insurance types available is critical in determining which policy will provide the necessary coverage.
Do AIA Contracts Require Specific Insurance Types?
Yes, AIA (American Institute of Architects) contracts often stipulate specific insurance requirements. For example, Exhibit A of AIA Contract A101-2017 outlines requirements for contractors to maintain insurance coverage for a certain period.
The Importance of Understanding Insurance Requirements in AIA Contracts
AIA contracts clearly define the duration for which contractors must maintain their insurance. As a contractor, it’s essential to understand whether your policy is written on a claims made or occurrence basis to ensure that you meet the contract’s insurance requirements.
For instance, Section A.3.2 of Exhibit A to A101-2017 specifies that contractors must purchase and maintain insurance until the “expiration of the period for correction of work,” as outlined in Section 12.2.2 of the General Conditions. This highlights the importance of knowing the type of insurance coverage you have and whether it aligns with the contract’s requirements.
Conclusion: Choosing Between Claims Made and Occurrence Policies
Choosing between claims made and occurrence policies is a key decision for contractors to make when managing risk on construction projects. While claims made policies are typically used for professional liability coverage, occurrence policies are more commonly used for general liability and property insurance.
Be sure to carefully review your project’s needs and the insurance requirements outlined in your contracts to ensure you select the right coverage.
Stay tuned for the next part of our series, where we dive deeper into the nuances of construction insurance!
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.