By Josh Stover
The American Institute for Architects (AIA) is the self-proclaimed “voice of the architectural profession” and the preeminent source of form contracts used throughout the construction industry. Each decade, the AIA releases an overhauled set of contracts in an effort to keep up with the ever-evolving construction landscape, the most recent of which was released in 2017.
Perhaps the most notable change in the 2017 AIA documents was the release of a new Insurance and Bonds Exhibit, which is to be used in conjunction with multiple Owner-Architect agreements including the AIA A101-2017 Standard Form of Agreement Between Owner and Architect. In substance, the new exhibit relocates a majority of the insurance and bond provisions previously found in the AIA A201 General Conditions of the Contract for Construction and modifies certain obligations of the owner and contractor related to insurance coverages.
WHAT REMAINS IN THE A201 GENERAL CONDITIONS?
Before we discuss the new exhibit, it is important to recognize that certain fundamental provisions related to insurance and bonds remain in the A201. For instance, the owner and contractor are still required to “purchase and maintain insurance of the types and limits of liability, containing the endorsements, and subject to the terms and conditions as described in the Agreement or elsewhere in the Contract Documents.” (§§ 11.1.1 and 11.2.1). Likewise, the contractor is required to provide surety bonds as required by the Contract Documents. (§ 11.1.2). By agreeing to such provisions, the parties acknowledge that other contract documents, namely the new exhibit, may contain specific insurance or bond requirements. The A201 retains other familiar provisions, such as:
The “Waivers of Subrogation” provision, by which the owner and contractor waive claims for damages to the extent such damages are covered under property insurance applicable to the project. (§ 11.3).
The provision requiring the owner to waive its claims against the contractor and architect for “loss of use” of the Owner’s property due to fire or other hazards. (§ 11.4).
OWNER’S REQUIRED INSURANCE
As did the A201-2007, the new exhibit requires the owner to purchase two types of insurance—liability and property. While the owner’s obligation to purchase liability insurance is limited to a general requirement that the owner purchase the “usual general liability insurance,” the owner’s obligations regarding property insurance are more detailed. (§ A2.2).
For the most part, the exhibit simply restates and reshuffles the property insurance requirements found in the A201-2007. Unless allocated to the contractor, the owner still must purchase and maintain builder’s risk “all-risk” coverage for no less than the amount of the initial Contract Sum plus subsequent changes. (§ A2.3.1). And the builder’s risk coverage still must not exclude certain causes of losses (fire, theft, vandalism, etc.) or coverages (damage to falsework, debris removal, reasonable compensation for required services, etc.). (§§ A2.3.1.1 and A2.3.1.2).
The exhibit places two new obligations on the owner. First, unless the parties agree otherwise, the owner must maintain the builder’s risk insurance “until expiration of the period for correction of the Work set forth in Section 12.2.2 of the General Conditions.” (§ A2.3.1.3). This requirement is in contrast to the requirement under the A201-2007, which required the owner to maintain the insurance only “until final payment has been made . . . or until no person or entity other than the Owner has an insurable interest in the property . . . whichever is later.” Second, if the work involves remodeling an existing structure, the owner must purchase and maintain “all-risk” property insurance, on a replacement cost bases, protecting the existing structure. (§ A2.3.3).
OWNER’S OPTIONAL INSURANCE
A significant feature of the new exhibit is the inclusion of à la carte optional insurance coverages. The parties may require the owner or contractor to purchase certain insurance simply by placing an “x” next to the desired coverage, and, where applicable, specifying the coverage limits. In the owner’s case, optional insurance includes extended property insurance such as civil authority insurance, ordinance or law insurance, and ingress/egress insurance. (§ A2.4). Although loss of use, business interruption, and delay in completion insurance is also optional, owners should strongly consider purchasing such insurance because, as discussed above, the General Conditions require owners to waive claims for loss of use. Finally, the exhibit provides an option for the parties to specify any additional insurances that they require. (§ A2.5).
CONTRACTOR’S REQUIRED INSURANCE
The exhibit expands certain obligations of the contractor related to purchasing commercial general liability insurance:
First, as was the case with the owner’s property insurance, unless the parties agree otherwise, the contractor must maintain a CGL policy “until the expiration of the period for correction of Work as set forth in Section 12.2.2 of the General Conditions.” (§ A3.2.1).
Second, contractors are prohibited from maintaining a CGL policy that contains any of 11 different exclusions, including “prior work” exclusions and exclusions for claims for bodily injury other than to employees of the insured. (§ A3.2.2.2).
Third, while the A201-2007 also required that contractors must include owner, architect and architect’s consultants as additional insureds on its CGL policy, the new exhibit requires “to the extent commercially available” that the additional insured coverage be no less than that provided by certain Insurance Services Office, Inc. forms. (§ A3.1.3).
Each of those provisions increases the burden on the contractor in maintaining a CGL policy. When possible, the prudent contractor should take measures to lessen those burdens during negotiations with the owner.
CONTRACTOR’S OPTIONAL INSURANCE
The contractor’s optional insurances include asbestos abatement liability insurance, railroad protective liability insurance, and, most significantly, builder’s risk insurance. (§ A3.3.2.1). If the parties so choose, the contractor may assume the obligation of purchasing builder’s risk insurance that would otherwise be required of the owner. By including this option, the AIA recognizes that while their prior contract documents obligated the owner to purchase builder’s risk, in practice, owners often shifted that obligation to the contractor.
BOND PROVISIONS
As should be expected, the exhibit does not require the contractor to provide surety bonds on the project. (§ A3.4). Instead, it provides the parties an option to require bonds (whether payment, performance or both) and specify the applicable penal sum.
CONCLUSION
The Insurance and Bonds exhibit is the AIA’s attempt to provide a flexible tool to aid the owner and contractor in discussing and negotiating insurance and bond requirements. As long as both the owner and contractor familiarize themselves with the terms of the exhibit and recognize that it is intended as a framework for negotiations and not a finished contract in itself, then both parties should find it useful.
About the author
Josh Stover is a member of the Burr & Forman’s Construction and Project Development practice group where he focuses his practice on construction and corporate development. He may be reached at jstover@burr.com.
Modern Contractor Solutions, July 2019
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