Artificial intelligence or AI is causing significant disruption in the construction industry and our world. However, in the context of construction law, contracts, and risk management, the abbreviation “AI” refers (first and foremost and for purposes of this article) to additional insured (AI). Obtaining coverage as an additional insured is part of the foundation for insurance coverage and legal defense against claims in construction. AI status allows upstream parties to access downstream parties’ insurance coverage directly and request that the insurance carrier provide a defense. This article highlights the importance of appropriately tailoring AI coverage obligations in your contracts and how the ConsensusDocs and the American Institute of Architects (AIA) standard construction contract documents handle this issue differently.
General contractors may request or insist on limiting their AI coverage obligations in their prime contracts to extend only to the owner and not to other parties not part of the prime agreement. However, the American Institute of Architect (AIA) A201 General Conditions document at subsection 11.1.1 requires the contractor to name not only the owner, but also to name the architect and the architect’s consultants as additional insureds on the Contractor’s General Liability Insurance Policy. In contrast, ConsensusDocs does not require the architect or engineer to be named as an additional insured. ConsensusDocs’ additional insured option is the following at section 10.4 in the ConsensusDocs 200 prime agreement and general conditions:
Additional Insured. Owner shall be named as an additional insured on Constructor’s CGL specified for on-going operations and completed operations, excess/umbrella liability, commercial automobile liability, and any required pollution liability, but only with respect to liability for bodily injury, property damage, or personal and advertising injury to the extent caused by the negligent acts or omissions of Constructor, or those acting on Constructor’s behalf, in the performance of Constructor’s Work.
Including architects as additional insureds expands a general contractor’s exposure and could increase insurance costs on a project. This is especially relevant when claims involve design issues and there are often blurry lines between design and means and methods. Significantly, most contractors’ CGL policies exclude coverage of "professional services." Consequently, coverage for architects and an architect’s consultants through AI status is likely illusory.
Significantly, ConsensusDocs does not default to an AI requirement but rather is a check-the-box option. Owners’ and Contractors’ Protective (“OCP”) Liability Insurance is equally an option. The OCP policy would have limits equal to the specified CGL limits as otherwise required by the Owner. Additionally, any documented additional costs associated with obtaining the AI or OCP coverage would be borne by the owner. If no option is selected, neither AI nor OCP will apply.
Many owners will accept striking AI coverage for architects and their consultants. Referencing the ConsensusDocs’ AI provision or using ConsensusDocs contracts helps illustrate that it is industry standard not to provide design professionals and the owner’s separate contractors AI status. AGC recommends the following to its members, as mentioned in their member-only comments at https://www.agc.org/industry-priorities/contracts-law:
The Constructor should be careful not to contractually overextend either the list of parties it protects or the types of claims it indemnifies those parties from. The Constructor should not agree to defend or indemnify non-essential Owner-related parties, arguably, design professionals or the Owner’s separate contractors. A best practice is to delete such parties from this clause. Also, here the Parties’ indemnity obligation is limited to the extent of the Party’s negligence and covers only insurable risks, i.e., personal injury (including death) and property damage. Therefore, ideally, the protected parties match the entity/entities the Constructor has agreed to name as Additional Insured under its Commercial General Liability (CGL) policy.
It is also worth noting that AI status is unavailable for owners under an architect’s or engineer’s professional liability policy.
Questions or comments about this article should be directed to Brian Perlberg, ConsensusDocs Coalition Executive Director & Senior Counsel, at bperlberg@consensusDocs.org.