Due Diligence for Insurance Coverage in Transportation Construction Contracts (2015)

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28 c) The insurance shall provide primary coverage to the Department and its employees both as to defense and indemnification as to both property damage and liability; d) In an amount sufficient to cover the sovereign immunity limits for public entities as published annually in the appro- priate authority (or as otherwise required by the agency); e) For a term which covers the entire period of time of the construction contract until such contract is formally accepted by the engineer; and f) The agency shall be identified as a certificate holder. Sovereign Immunity Not Waived. In securing the insurance noted above, the contractor shall provide the insurance car- rier with a copy of the specifications, as well as a copy of the construction contract, at the time the request for coverage is made to the carrier. The policy issued by the carrier shall specifically state that coverage by the contractor does not waive sovereign or governmental immunity. Affidavit of Coverage. The contractor shall file an affidavit attesting that the contractor’s insurance carrier has been pro- vided the necessary information in accordance with this sec- tion, and that the necessary coverage has been secured or is in the process of being secured in accordance with the applicable provisions. The contractor’s affidavit shall also attest that the contractor will cause such coverage to be updated as required by these specifications and applicable law. Certification of Coverage. The contractor shall provide the Department with proper certificate(s) of insurance, and all endorsements, within ten (10) days of the commencement of the construction contract. The certificate shall state on its face any and all exclusions to required coverage, and the insurer shall provide the Department with a certified copy of the policy within ninety (90) days of the commencement of the construction contract. Failure to obtain the mandated coverage and to comply with any required annual increases constitutes a material breach of the contract between the parties. The contractor agrees to procure an addendum to its insurance policy should it be determined that the insur- ance procured does not comply with these specifications. Notice of Claims and Acknowledgment of Coverage. The Department will provide timely notice to the contractor of any claims or lawsuits that it receives. If the Department demands that the contractor defend the suit and/or indem- nify it, the contractor or its insurance company will acknowledge that demand within 20 days of receiving it and verify coverage and intent to defend within 60 days of receipt of the claim or lawsuit. Failure to comply with this provision constitutes a material breach of the contract between the parties and the Depart- ment may withhold funds due the contractor on any job until such time as the Department is satisfied that funds are available to pay the claim, defense of the case has been agreed upon, or the claim is resolved. Any failure by the Department to report claims or accidents in compliance with reporting requirements of the insurance company shall not affect coverage. Subcontractor’s Coverage. If any part of the contract is sub- contracted, each subcontractor, or the contractor on behalf of that subcontractor, shall obtain the same commercial general liability insurance and commercial automobile lia- bility insurance coverage. The commercial general liability insurance shall name the same entities specified herein as additional insureds, and shall have the same separation of insureds conditions. The policy shall specifically state that coverage by the contractor does not waive sovereign or gov- ernmental immunity. Workers’ Compensation Insurance. The contractor shall fur- nish evidence to the engineer that, with respect to the oper- ations the contractor performs, the contractor carries work- ers’ compensation insurance, or is qualified by the applicable Workers’ Compensation authority as self-insured, and car- ries insurance for employer’s liability sufficient to comply with all obligations under state laws relating to workers’ compensation and employer’s liability. The contractor shall require each subcontractor on the project to furnish the same evidence to the engineer. This evidence shall be fur- nished to and approved by the engineer prior to the time the contractor or subcontractor commences work on the site of the project. CONCLUSION One of the most fundamental concepts in risk management is allocation of risk. A road or bridge construction project necessarily entails a myriad of risks: risk that the project won’t be built within the budget; risk that it won’t be built in compliance with standards; risk of serious injury and death by employees of the agency and contractor; and the risk of serious injury or death to members of the travel- ing public. In order to appropriately allocate the risks of the project, the agency must consider whether to accept a particular risk or to allocate the risk to another party. State agencies have generally decided that it is cost effective to assign most of the risk associated with its construction projects to the entity that is best able to control it: the contractor. To determine current state practices, a compre- hensive survey was sent to all state Departments of Transportation. Most of the responding agencies indicated that they do not review insurance policies or endorsements, but instead rely on the contractor’s insurance carrier to provide the required coverage and review only the certificate of insurance provided by the carrier. Few states have comprehensive pro- cesses in place to ensure that the required coverage has been obtained. Due diligence requires that the agency make sure insurance and indemnity provi- sions are in place before the work begins. If a con- tractor’s actions or inactions cause an accident, the contractor should be responsible for the damages, not the transportation agency. If coverage is not confirmed prior to the issuance of the Notice to Proceed, years may pass before any- one reviews the insurance policy language. That review will occur, generally, after an accident has occurred and the agency receives notice of a claim or that litigation is pending. Once the parties are in litigation, even assuming the contractor and the