Last weekend we played Speak-Out: Kids versus Parents, a game where you use a plastic thingy to obstruct your speech capabilities. The winning team is the one that guesses the most phrases. Reading and understanding an insurance policy on a construction project can be a lot like understanding my kids playing Speak Out.
Proper insurance coverage is an important risk management tool for contractors, subcontractors, project owners/developers and design professionals. Whether you are required by contract or law, purchase and maintaining the appropriate coverage can help you avoid catastrophe on your project. Since there are so many types available, it is important to understand what is being covered…and what is not.
This was a hard lesson learned by a contractor recently in Vivify Construction v. Nautilus Insurance Co., a recent decision issued by the Appellate Court of Illinois. In that case, the contractor and subcontractor (and their insurance carriers) were pointing the finger at each other for injuries sustained by an employee of the subcontractor.
The subcontract agreement required the subcontractor to indemnify and hold harmless the contractor against claims of bodily injury resulting from the subcontractor’s work. The subcontract also required the subcontractor to include the contractor as an “Additional Insured” on its policy.
The insurance policy provided “Additional Insured” coverage for the contractor. But it also contained an endorsement that included an “employee exclusion,” which stated that the policy did not apply to bodily injury to the subcontractor’s own employees.
The Court was required to parse through the applicable contract and insurance provisions. In the end, the Court found that—despite the “Additional Insured” status of the contractor—the subcontractor’s insurance policy contained the broadened employee exclusion provisions. This ultimately negated coverage.
Vivify Construction addresses such a small portion of insurance coverage disputes on construction projects, but the lesson is far more impactful. Despite the difficulty in reading and understanding insurance coverages on a project, you are advised to specify in your contracts what types, amounts, and limitations are acceptable for a project. While cumbersome, don’t just rely on a certificate of insurance provided by a party, but ask them to get you a copy of the actual policy to review. Don’t try to figure out what was said after the dispute arises.