Vol. 9 No. 8		August 1990

Owners pay close attention to the general contractor's insurance. They know there is a great deal of protection to be found there, and they will go to great lengths to secure that protection. General contractors, in turn, approach their subcontractors with similar demands. Your best interests may well be served by equally close attention to protections which may be available to you.

There is an historic rationale for all this risk shifting. The general contractor assumes constructive control of the owner's property in the hopes of realizing an economic benefit. It is not unreasonable for the owner, in return, to expect the contractor to assume responsibility for the consequences of its activities on the site. But some of the risks inherent in those activities also run to the owner--by virtue of both title to the property and participation in the management of the project.

The owner could insure those risks independently, but where they are shared with the general contractor, it is neither efficient, nor does it make economic sense to do so. It makes far more sense to seek indemnification and insist that the indemnification be backed by insurance. The idea is to place responsibility in the hands of the party in the best position to control the events leading to a loss.

How does all this affect you? You do not own the project, but you do participate in its management. Like the owner, you could find yourself in a position in which your proximity to a loss arising out of the activities of the contractor would create a partial responsibility for that loss. Why should you not be protected in the same manner and to the same extent as the owner? Perhaps you should be.

For reasons not entirely clear, neither the AIA owner/architect agreement, nor the EJCDC owner/engineer agreement address indemnification by the contractor. Both isolate this issue in the general conditions. The problem is, not all owners are willing to use the standard forms, and nothing in your agreement requires them to do so. Your expectation of the extension of a reasonable protection may be frustrated by an owner who intentionally or through oversight fails to require it of the contractor.

The contractor's indemnification of you can have great value. This is true in spite of the fact that the contractual liability language of the contractor's policy excludes indemnification for losses arising out of the performance of professional services. According to the fine print, this exclusion does not apply to the giving of or failure to give instructions, unless those instructions are the primary cause of the loss.

Presumably, indemnification for losses which are partially, but not primarily attributable to your instructions would be covered. So, too, would claims arising out of injuries on the site for which you have no responsibility. Both represent significant benefits, and it does not make sense to leave these valuable protections to chance.

Being named as an additional insured on the contractor's policy can add to your protection. Unlike contractual liability coverage, which modifies the basic policy language, all professional services are excluded. Any protection extended to you would be limited to losses arising out of activities other than your professional acts. But, where does one draw the line? Somewhere in a gray area which surrounds the distinction between what might constitute professional performance and what might not.

If you are named on the contractor's policy, you may well be protected from claims falling within that gray area. Most courts will resist attempts by insurers to subrogate against their own insureds, and knowing this, few insurers will pursue their subrogation rights against you unless the odds of overcoming that resistance are very high. Gray areas do not produce good odds. Therein lies the advantage to you.

This also helps to explain why general liability insurers are somewhat chary of naming architects and engineers as additional insureds. But they will stand behind the indemnification language of the standard general conditions (which includes both you and the owner). Thus, you have an insurable interest in the contractor's policy, and there is no reason not to ask that your insurable interest, in fact, be insured.

Subject to the advice of your attorney, you might secure both indemnification and the protection of the contractor's insurance by including a provision in your agreements drafted along the following lines:

The Owner agrees to require the Contractor, to the fullest extent permitted by law, to indemnify, hold harmless, and defend the Architect/Engineer, its consultants, and the employees and agents of any of them from and against any and all claims, suits, demands, liabilities, losses, damages, and costs ("Losses"), including but not limited to costs of defense, arising in whole or in part out of the negligence of the Contractor, its subcontractors, the officers, employees, agents, and subcontractors of any of them, or anyone for whose acts any of them may be liable, regardless of whether or not such Losses are caused in part by a party indemnified hereunder. Specifically excluded from the foregoing are Losses arising out of 1) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs, or specifications, and 2) the giving of or failure to give directions by the Architect/Engineer, its consultants, and the agents and employees of any of them, provided such giving or failure to give is the primary cause of Loss.

The Owner further agrees to require the Contractor to name the Architect/Engineer, its agents and consultants on the Contractor's policy or policies of comprehensive or commercial general liability insurance. Such insurance shall include products and completed operations and contractual liability coverages, shall be primary and noncontributing with any insurance maintained by the Architect/Engineer or its agents and consultants, and shall provide that the Architect/Engineer be given thirty days, unqualified written notice prior to any cancellation thereof.

In the event the foregoing requirements, or any of them, are not established by the Owner and met by the Contractor, the Owner agrees to indemnify and hold harmless the Architect/Engineer, its employees, agents, and consultants from and against any and all Losses which would have been indemnified and insured against by the Contractor, but were not.

Is this aggressive? Yes. Is it attainable? Not always. But if nothing else it can serve as a place to start. It is certainly worth the asking.