By Michael F. Davy, P.E., F.NSPE
One of the more effective ways A/Es have of managing risk is to see that all parties on a construction project have adequate insurance. The standard EJCDC and AIA specifications provide detailed requirements for the bonds and insurance to be provided by the owner and contractor. Most of the coverage is provided by the contractor. Having all the specified bonds and insurance in place during and following construction is important, but there are weaknesses in the current system that put everyone at risk.
Bonds are generally not an issue. There are standard forms, and as long as they are properly executed it’s simple for the parties to determine that they are in place and meet specifications.
Insurance is an issue. First of all, keep in mind that most projects are small and do not involve an owner with a risk manager on staff. The A/E is often the “reviewer” by default. Typically, owners and A/Es rely on the certificate of insurance to determine that the specified policies are in place. These one page documents are intended to be a summary of the coverage and provide little detail. To actually verify that the required coverage is provided would require collection and review of all the policies. Few owners or A/Es have the expertise or time to do this detailed review. We are all depending on the contractor’s insurance broker to review the specifications when issuing the certificate of insurance, but in our experience that rarely happens.
The second issue is related to the term of the insurance. Certainly the owner and other parties on a construction project are entitled to know if a policy is terminated or expires. The standard certificate of insurance form published by the Association for Cooperative Operations Research and Development and used by almost all insurance brokers is purposely vague: “Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.” Not a very reassuring statement. While you can insist on notification endorsements from each of the insurance companies, that seems an unnecessarily convoluted way of dealing with this issue.
From the A/Es perspective, a simple way of dealing with these two issues is to have the certificate of insurance edited so that the agent is certifying that the coverage meets the specifications and that 30 days’ notice will be provided if any of the policies are modified or terminated. While simple, brokers want to avoid liability. Understood. We all want to avoid unnecessary liability, but what’s the point of being an insurance expert if they don’t use their expertise?
A/Es are obligated to certify that that the documents we prepare meet certain standards. We accept the responsibility and liability and use insurance to mitigate our risk. Insurance brokers and agents are expected to have the expertise to certify coverage and monitor terminations and should be able to provide a similar certification. If there is concern about liability, they can get their own insurance.
NSPE member Michael F. Davy, P.E., F.NSPE, is a member of the Professional Engineers in Private Practice’s Professional Liability Committee.
