If you are constantly signing construction contracts, you may be used to seeing the same wording over and over. While you may not think twice about it, there are words that are commonly used with certain implications you may not fully understand, particularly with regards to your insurance requirements. Not being clear on this matter could end up costing you dearly.
A recent white paper released by Lockton Companies discusses, at length, five examples of wording in construction contracts that is often misunderstood:
Additional Insured vs. Additional Named Insured
Additional Insured and Additional Named Insured are often taken to mean the same thing. There is actually a significant difference. Adding an Additional Named Insured to your insurance policy gives this other party the same rights to the coverage you have. Additional Insureds are limited to coverage in the event they are sued as a direct result of your operations or work.
Maintain vs. Provide
Many contracts specify that Commercial General Liability policies must "provide" completed operations coverage for X number of years. This wording makes you responsible for future liabilities associated with work completed and could force you to purchase a wrap-up insurance, essentially a policy that centralizes coverage for all parties working on a project. Using "maintain" instead means you are only responsible for securing coverage for the duration of the time agreed upon in the contract.
Your contract may require a notice of cancellation, expiration and/or notice of material change to the project owner. It is important to know that insurance companies will typically only provide a notice of cancellation so the responsibility for the rest would fall on you if this is included in your contract.
Subject to Policy Terms, Conditions, and Exclusions
The coverage under your insurance policy may not be as comprehensive as you think if you are not completely clear on all the exclusions. Ensure you have a full understanding of risks that are not covered.
Aggregate Limits refer to the maximum amount that the insurance company will pay out during the duration of a policy period. Most Commercial General Liability policies have two types - a General Aggregate and a Completed Operations Aggregate. The General Aggregate refers to the coverage limit available during the project whereas Completed Operates Aggregate refers to that which is available after project completion.
Being misinformed on any of the above can burden you with unexpected costs. Have your broker review the insurance requirements of a contract so that you are clear on all the stipulations before signing.