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Page 47
Suggested Citation:"APPENDIX F COMMONLY USED TERMS." National Academies of Sciences, Engineering, and Medicine. 2015. Due Diligence for Insurance Coverage in Transportation Construction Contracts. Washington, DC: The National Academies Press. doi: 10.17226/22107.
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Page 47
Page 48
Suggested Citation:"APPENDIX F COMMONLY USED TERMS." National Academies of Sciences, Engineering, and Medicine. 2015. Due Diligence for Insurance Coverage in Transportation Construction Contracts. Washington, DC: The National Academies Press. doi: 10.17226/22107.
×
Page 48
Page 49
Suggested Citation:"APPENDIX F COMMONLY USED TERMS." National Academies of Sciences, Engineering, and Medicine. 2015. Due Diligence for Insurance Coverage in Transportation Construction Contracts. Washington, DC: The National Academies Press. doi: 10.17226/22107.
×
Page 49
Page 50
Suggested Citation:"APPENDIX F COMMONLY USED TERMS." National Academies of Sciences, Engineering, and Medicine. 2015. Due Diligence for Insurance Coverage in Transportation Construction Contracts. Washington, DC: The National Academies Press. doi: 10.17226/22107.
×
Page 50

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F-1 APPENDIX F—COMMONLY USED TERMS Additional Insured. When an agency is named as an additional insured, it has direct rights under the insurance contract. The agency becomes an insured under the policy. The status is requested when the contractor has agreed to indemnify the agency. Coverage may be limited to actions that have a connection with the contractor’s actions or inactions but coverage should include the same right of defense in a lawsuit that the contractor is entitled to receive. Additional Named Insured. When an agency is named as an additional named insured, it has coverage under the insurance contract for all of the operations of the agency, not just those operations related to a particular construction contract. Aggregate Limits. A contract provision which limits the maximum liability of an insurer for a series of losses in a given time period—for example, a year or for the entire period of the contract. Bad Faith. Insurance companies owe a duty of good faith and fair dealing to the persons they insure. This duty is referred to as the "implied covenant of good faith and fair dealing" which automatically exists by operation of law in every insurance contract. If an insurance company violates that covenant, the policyholder may sue the company on a “bad faith” claim in addition to a breach of contract claim. The plaintiff in an insurance bad faith case may be able to recover an amount larger than the original face value of the policy, if the insurance company's conduct was particularly egregious. Business Auto Coverage. Coverage that relates to the contractor’s work or service involving the use of motor vehicles. Each state requires automobile coverage for vehicle owners. Commercial General Liability. Fundamental coverage for bodily injury, property damage, and personal injury arising from the contractor’s activities. Endorsement. Special provisions added to an insurance policy to enhance or restrict its coverage. Excess or umbrella coverage. Umbrella and excess liability policies provide the insurance limits needed for catastrophic losses. Umbrella coverage is normally coverage above primary liability policies. It provides coverage not available in primary policies, such as contractual liability coverage, business risk, personal injury, and employees as additional insureds. Excess policies do not provide

F-2 any additional coverage other than that contained in underlying policies, but does provide additional monetary coverage. Hold Harmless. This language, which is binding on the entity accepting the responsibility to “hold harmless”, shifts responsibility for loss or damage from the actions or activities by one party to the contract to the other party to the contract. It is the contractor’s promise to pay for claims caused, in whole or part, by its activities. Indemnify. Repayment for loss, damage, or injuries. An indemnity contract arises when a contractor takes on the obligation to pay for any loss or damage that has been or might be incurred by the state. The right to indemnity and the duty to indemnify typically stem from a contract, which usually protects against liability, loss, or damage. Insured. The contractor or state agency that is covered by insurance. Named Insured. Usually the policyholder (the contractor) who has contracted for insurance coverage and whose interests are protected by the policy. The named insured is specifically identified as being covered in an insurance policy. Notice of Cancellation. When an agency receives notice of cancellation of the contractor’s insurance policy it must immediately follow up with the contractor and/or the insurance company to ensure that coverage for the covered project does not lapse and the agency is unprotected by insurance. The certificate of insurance may provide that the agency, if it is an additional insured, will receive thirty days’ notice of the cancellation of a policy. If insurance is cancelled and not replaced, the agency should consider the contractor to be in breach of the contract. Omnibus Insured. A person or entity that is covered by an insurance policy, but not specifically named in that policy. Ongoing Operations. This type of coverage protects the contractor and the agency from damages that occur during the course of the construction project. It does not cover the agency or contractor after the project has been completed. Owner Controlled Insurance Programs (OCIP). An OCIP is an insurance and risk control program that is typically implemented for a single construction project or a series of construction

F-3 projects. Instead of each contractor providing its own insurance and passing the cost to the agency (the owner) through the construction contract, the owner of the project purchases certain lines of insurance (such as general liability, excess liability, and workers compensation) to cover most of the contractors on a job site. Owner’s Protective Policy (OPP). This insurance coverage provides for payment on behalf of the insured of all damages the insured becomes legally obligated to pay due to bodily injury or property damage caused by an occurrence rising from either operations performed for the named insured by independent contractors or acts or omissions of the named insured. Primary Coverage. When the agency has primary coverage, the contractor’s insurance is the first policy to cover any claim, with the agency’s coverage (if applicable) only to be used after the contractor’s insurance limits are exhausted. Professional Liability. Coverage for errors in professional judgment, such as a mistake in a traffic control plan or construction plans, which lead to damages or injury to the agency or others. This type of coverage should be obtained for services such as engineering, legal, accounting, and insurance brokerage. Verification of Coverage. Proof that the contractor is supplying coverage that is required by the contract between the agency and the contractor. The agency should be listed as a certificate holder. Verification of coverage as an additional insured cannot be verified by a review of the insurance certificate but must be done by review of the endorsements to the actual insurance policy. Worker’s Compensation. All employers must provide this insurance for their employees, unless they are exempt from this requirement either due to size of the employer or their status as self- insured. Worker’s compensation coverage protects the employee in case of injury on the job.

Next: APPENDIX G PROPOSED ADDITIONAL INSURED ENDORSEMENT »
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TRB's National Cooperative Highway Research Program (NCHRP) Legal Research Digest 66: Due Diligence for Insurance Coverage in Transportation Construction Contracts explores the process of "due diligence," in which a transportation agency acquires objective and accurate information about its insurance companies and contractors in order to evaluate the risks of entering into an agreement and a contractual relationship. The report addresses the common issues faced by the agencies such as: proof of coverage; difficulty of interpretation of specification and insurance language; coverage disputes; lapse in coverage; and qualifying contractors for the bidding process.

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