Construction Projects Require Multiple Types of Insurance, Held by Different Parties
A construction project involves significant financial risk - the risk that someone will be injured, that the partially-built structure will be damaged, that design errors will cause financial losses, or that the contractor will fail to pay subcontractors. Different types of insurance address these different risks, and understanding which party carries which insurance, and what each type covers, is foundational professional knowledge for both the PcM and CE divisions of the ARE. The AIA contract documents (A101, A201, B101) all have insurance-related provisions that define the parties' insurance obligations, making insurance knowledge directly relevant to contract administration.
Workers' Compensation Insurance
Workers' compensation insurance is carried by the contractor (and required of subcontractors) to cover employees who are injured on the job. In all U.S. states, employers are required by law to carry workers' compensation insurance. Workers' comp provides medical care, wage replacement, and disability compensation to injured workers without requiring the worker to prove the employer was negligent. In exchange, workers' comp typically provides the exclusive remedy for work-related injuries - injured workers generally cannot sue the employer in tort for workplace injuries. The architect must verify that the contractor's certificate of insurance shows adequate workers' compensation coverage at the beginning of construction.
Commercial General Liability (CGL) Insurance
Commercial General Liability insurance covers bodily injury and property damage arising from the insured's operations, completed operations, and premises liability. For contractors, CGL covers claims from third parties (owners, adjacent property owners, members of the public) who are injured or whose property is damaged as a result of the contractor's work. CGL does not cover professional errors - that is the domain of professional liability insurance. Under AIA A201, the contractor is required to purchase and maintain CGL insurance with minimum coverage limits specified in the contract. The owner is typically named as an additional insured on the contractor's CGL policy.
Builder's Risk Insurance
Builder's risk insurance (also called course of construction insurance) covers the work under construction against damage from fire, wind, lightning, vandalism, and other specified perils. It is a property insurance policy covering the insurable interest in the project during construction. AIA A201 requires the owner to purchase builder's risk insurance covering the full value of the work, with the contractor and subcontractors named as additional insureds. The policy covers materials delivered to the site and materials stored at approved off-site locations. Builder's risk does not cover professional errors, design defects, or construction defects - only physical damage from insured perils. The policy is typically terminated at substantial completion, when the project transitions from a construction site to an occupied building and the owner's property insurance takes over.
Professional Liability (E&O) Insurance
As discussed in the context of architect professional liability: professional liability (Errors and Omissions) insurance covers financial losses resulting from professional negligence. For the architect, E&O covers claims arising from design errors, omissions, or failures to meet the standard of care. Contractors do not have professional liability exposure in the same way - contractors are responsible for physical work, not professional design judgments. However, design-build contractors and construction managers who perform design functions increasingly carry professional liability coverage for those design-related activities.
AIA A201 Insurance Requirements
AIA A201 Section 11 establishes the insurance requirements for both the contractor and the owner. The contractor must provide: workers' compensation (statutory limits), employer's liability, commercial general liability (with minimum coverage amounts that are customized in the supplementary conditions), and automobile liability. The owner must provide: builder's risk (or property) insurance at the full replacement value of the work. The architect does not have specific insurance obligations under A201 - those are established in the B101 owner-architect agreement.
Key Exam Points
- Workers' comp: contractor carries; covers injured workers; required by law; exclusive remedy for work injuries.
- CGL: contractor carries; covers third-party bodily injury and property damage; owner often named as additional insured.
- Builder's risk: owner provides per A201; covers work in progress against physical damage perils; terminates at substantial completion.
- Professional liability (E&O): architect carries; covers professional negligence claims; claims-made coverage.
- Builder's risk does NOT cover design defects or construction defects - only physical damage from insured perils.
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