Construction Basics for Owners: Insurance and Bonds

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["b"],["i"],["strong"]],"sections":[[1,"p",[[0,[],0,"June 16, 2022"]]],[1,"p",[[0,[],0,"It is\nimportant to have some knowledge about insurance and bonds going into a\nconstruction project. What types of insurance should your architect and\ncontractor carry? What insurance should you have? And, what does it mean for a\ncontractor to be bonded? We will discuss these topics in this article. "]]],[1,"p",[[0,[0],1,"Insurance"]]],[1,"p",[[0,[],0,"Architect: Standard\ninsurance coverages that an architect should carry are commercial general\nliability, automobile liability, workers\u2019 compensation, and employers\u2019\nliability, which covers claims by employees not otherwise covered by workers\ncompensation. Commercial liability insurance is a common type of insurance that\nmost businesses carry. It covers third-party claims for personal injury and\nproperty damage arising out of the course of normal business operations. Commercial\nautomobile liability insurance covers liability for accidents involving\nbusiness vehicles. Workers\u2019 compensation insurance is required by statute and\nprovides coverage for injuries sustained by the business\u2019 own employees in the\ncourse of their work. It is important to be sure that any business that\noperates on your premises has workers\u2019 compensation insurance because, if not,\nyou could potentially be liable if the employee of a business is injured on\nyour property. "]]],[1,"p",[[0,[],0,"The\narchitect should also have professional liability insurance. You probably have\nsome familiarity with the types of insurance discussed above but you may not\nknow about professional liability insurance, also referred to as errors and\nomissions or E\u0026O, insurance. This policy covers the architect for claims\nmade relating to their performance of professional services, such as claims for\nadditional costs required due to a design error. "]]],[1,"p",[[0,[],0,"Some\ncontracts will include fill points in which to specify the amount of coverage\nthat the architect should carry for each of these types of insurance. Contracts\nfor smaller projects may not include that, but you should check with your\narchitect to make sure that they have these types of insurance policies and\nthat you are covered by them, as applicable. "]]],[1,"p",[[0,[],0,"Contractor: Your\ncontractor should also carry commercial general liability, automobile\nliability, workers\u2019 compensation, and employers\u2019 liability insurance. In\naddition, the contractor should have builder\u2019s\nrisk insurance, which covers damage to the work under construction. If the\ncontractor is providing design services, the contractor should have\nprofessional liability insurance. In some instances, the contractor may need to\ncarry a specialized form of insurance which is project specific, such as pollution\ninsurance. "]]],[1,"p",[[0,[],0,"As with the\narchitect\u2019s contract, there may or may not be fill points to specify the types\nand limits of required insurance coverage in the owner\/contractor agreement,\nbut you should make sure your contractor has the standard insurance. In some\njurisdictions, contractors are required to post their insurance coverages\nonline with the governing agency so the clients can easily access the\ninformation. If a specialized form of coverage is needed, that should be\nwritten into the owner\/contractor agreement. "]]],[1,"p",[[0,[],0,"Owner: You should have liability insurance and property insurance\nto cover the value of your property. For a residential project such as a\nremodel, you would want to provide property insurance sufficient to cover the\nreplacement value of your property that might be damaged or destroyed and that\nis not otherwise covered by the contractor\u2019s builder\u2019s risk insurance. This might\nbe relevant if, for example, during the course of a remodel, there is damage to\nanother part of the structure. "]]],[1,"p",[[0,[],0,"It\u0027s a good idea to contact your insurance agent or broker before signing\nyour agreements to ask for recommendations on what insurance and coverage\nlimits all of the parties should have. You would also want to confirm that the\nother parties have the required coverages by asking for certificates of\ninsurance or looking at the web site for your jurisdiction if the information\nis posted there. "]]],[1,"p",[[0,[0],1,"Bonds:"]]],[1,"p",[[0,[],0,"Most states\nrequire contractors to be licensed and bonded. You can check on a contractor\u2019s\nlicense status by inquiring with the relevant government agency in your\njurisdiction. States typically have training or education requirements for\nobtaining a license, which gives you some assurance that your contractor is\ncompetent to do the job. The state-required bonds, which are issued by a surety\ncompany, usually provide financial resources for completion of the job if, for\nsome reason, the contractor cannot complete it. The owner can make a claim\nagainst the bond. Note that a bond is not the same thing as insurance and the\nsurety company, which is paying under the bond, may have rights, such as\nproviding the new contractor and overseeing completion of the project. Again,\nyou should check your state\u2019s specific requirements so that you know exactly\nwhat the contractor\u2019s bond will cover. There may be different requirements for\ncommercial and residential bonds. "]]],[1,"p",[[0,[],0,"There are also\nmany types of specialty bonds, such as bid bonds, or bonds that may exceed the\nstate\u2019s minimum bonding requirements, such as performance and payment bonds\nwritten with higher limits. These are not typical in residential and small\ncommercial projects but, if you have a project with a higher budget than the\nstate-required bond amount, you may wish to look into requiring your contractor\nto obtain an additional bond. In that case, you might need to negotiate which\nparty will pay for the cost of the additional bond. "]]],[1,"p",[[0,[0],1,"Conclusion"]]],[1,"p",[[0,[],0,"Insurance\nand bonds are excellent tools"],[0,[0],1," "],[0,[],0,"by which to allocate risks and provide\nprotections in construction projects. Although\nnot as exciting to think about as materials for your new countertops or your\nnew gaming room, they are important to incorporate appropriately into your\nproject requirements. "]]],[1,"p",[[0,[],0,"We hope you\nhave enjoyed reading these articles and that they have helped to equip you with\nsome basic knowledge about construction projects. We encourage you to consult\nwith your attorney, insurance adviser, and other relevant professionals prior\nto beginning a project. And, mostly, we hope you have great success with your\nproject! "]]],[1,"p",[[0,[1],1,"Susan Van\nBell, Esq. was Senior Director of Content for AIA Contract Documents for over\nten years. She is currently a consultant. "]]],[1,"p",[[0,[2,1],2,"AIA Contract Documents has provided this\narticle for general informational purposes only. The information provided is\nnot legal opinion or legal advice and does not create an attorney-client\nrelationship of any kind. This article is also not intended to provide guidance\nas to how project parties should interpret their specific contracts or resolve\ncontract disputes, as those decisions will need to be made in consultation with\nlegal counsel, insurance counsel, and other professionals, and based upon a\nmultitude of factors. "]]]]}