Contract documents

April 28, 2023

Insurance is an essential part of a facilities maintenance contract because it provides risk mitigation and financial security to all parties involved in the project. Part 1 of this insurance article reviews the standard insurance provisions you will find in a facilities maintenance contract.

Standard Insurance Provisions

In a facility maintenance contract, a contractor will be required to procure standard insurance coverage, including commercial general liability, auto liability, workers’ compensation, and employer’s liability insurance. A summary of each is provided below.

1. Commercial General Liability. Commercial general liability generally protects a contractor against liability claims for bodily injury and property damage arising out of the work. Depending on the circumstances surrounding the incident that led to a claim, different parties can make a claim against a contractor’s commercial general liability policy, including a third party (e.g., a pedestrian injured while walking by the project) and a client (e.g., a client whose facility is damaged from a contractor’s faulty plumbing).
2. Automobile Liability. Auto liability generally covers owned and unowned vehicles used by the contractor. Specifically, the auto liability policy includes coverage for any accident, for bodily injury, death of any person, and property damage arising out of the vehicle ownership, maintenance, and use. Similar to commercial general liability coverage, different parties can make a claim against the contractor’s auto liability policy, including a third party (e.g., a contractor’s vehicle is in an accident and injures a pedestrian or another driver) and a client (e.g., a contractor’s vehicle causes damage to the client’s property).
3. Workers’ Compensation. Workers’ compensation insurance generally provides benefits to a contractor’s employees who suffer job-related injuries or illnesses. Workers’ compensation claims are limited to a contractor’s full time, part time, or temporary employees.
4. Employer’s Liability. Employer’s liability insurance generally provides benefits to a contractor’s employees who suffer job-related injuries and illnesses that are not covered by workers’ compensation. The contractor’s employees may make a claim. Additionally, this insurance may also cover third party claims (e.g., a contractor’s injured employee sues a client for a work-related injury or illness that occurred on the client’s property, and, as a result, the client sues the contactor).

Each standard insurance policy may have different limits. Limits can be per accident, per occurrence, or in the aggregate, and each limit may need to be reviewed and adjusted based on the project’s scope of work. Additionally, the specific terms and conditions of each insurance policy will determine the parties and the types of claims covered. Consulting with an insurance adviser is recommended.

AIA Contract Documents new facilities maintenance documents are designed to address the business conditions and legal environment of facilities maintenance. The documents are intended to be used when a client hires a contractor to perform any building repair, maintenance, or improvement, and are further described below. Learn more here: AIA Contract Documents New Facility Maintenance Agreements

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.