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Insurance Clauses - Contract Enhancement Clauses

Contract Enhancement Clauses

​Clause

The liability insurance coverages, except Professional Liability, Errors and Omissions, or Workers’ Compensation, if included, required for performance of the Contract shall include the State of Oregon, the Department of _____________ and its divisions, officers and employees as Additional Insureds but only with respect to the Contractor’s activities to be performed under this Contract. Coverage shall be primary and non-contributory with any other insurance and self-insurance.

Notes

  • Additional Insured provisions extend to the state defense and coverage under the Contractor’s policy, if we are blamed for something the Contractor did. The state benefits by not having to use its assets for litigation purposes.
  • The purchase of a "Blanket Additional Insured Endorsement" is another alternative to naming the State as an Additional Insured on a Contactor´s existing coverage. The Contractor´s insurer may be more willing to provide this option as it is extra coverage the Contractor must purchase. 
  • Does not apply to Professional Liability, Errors and Omissions, or Workers’ Compensation  coverages.

​Clause

Contractor shall obtain, at Contractor’s expense, and keep in effect during the term of this Contract, Owners and Contractors Protective Liability Insurance, naming the State of Oregon, the Department of _______________ and its divisions, officers and employees as the Named Insured. Coverage limit per occurrence shall not be less than  $ __________.  Annual aggregate limit shall not be less than $ ____________.  As evidence of the coverage, the Contractor shall furnish the actual policy to the Department of _______________ prior to its issuance of a Notice to Proceed.

When do they apply?

  • Use Owners & Contractors Protective (OCP) Liability as an alternative to Additional Insured ONLY when the risk of loss is high AND the Contractor or its insurer refuse to name the state as Additional Insured.

Notes

  • Covers the state (Named Insured) for bodily injury or property damage from vicarious liability arising out of operations performed for the State by independent contractors in connection with a specific project(s); or for the State´s own acts or omissions in connection with its "general supervision" of the contractor´s work.
  • When Owners and Contractors Protective Liability is used as an alternative to Additional Insured, CGL coverage is still required.
  • The OCP policy is purchased by the independent contractor for the Project Owner (state) to cover the State´s vicarious liability for acts attributed to the independent contractor or its employees. The policy does not provide protection for the independent contractor.
  • Coverage is limited to a specific project or contract and ends when the project is complete or the terms of the contract are fulfilled. The OCP policy is only written for one year at a time. If the length of the project is more than one year, the OCP policy would need to be renewed until the project terminates.
  • The Owners and Contractors Protective Liability coverage is a stand alone policy. The insurance provided is primary coverage. It is occurrence based; no claims made coverage is available. No deductibles apply.
  • Alternative insurance called “wrap-up” may apply on very large construction projects ($90 million in construction costs). 
  • Setting Limits: Assess the risks of the particular contract to determine appropriate insurance limits and risk control measures.

Additional information

  • Vicarious liability is when one party is held responsible for the actions or conduct of another party based solely on the relationship of the two parties. For purposes of the OCP policy, it is when the Named Insured (project owner, i.e. state of Oregon) is ultimately held liable for the acts of a hired contractor, sub-contractor or independent contractor who is working for or on their behalf.
  • Usually vicarious liability stems from injury or damage caused by an employee under a strict employer-employee relationship; but under certain circumstances the liability exposure of acts of non-employees, such as independent contractors, may be attributed to the project owner, i.e., state of Oregon. The circumstances fall into three categories:
    • Work that is inherently dangerous.
    • Projects that impose non-delegable duties on the project owner under local, state or federal law.
    • Negligence of the project owner in hiring in incompetent contractor.
  • The state of Oregon has other alternatives when covering its vicarious liability. Other alternatives are to have the contractor hole the state harmless for losses arising out of the contractor´s operations or to have the contractor add the state as an additional insured under the contractor´s CGL policy.

​Clause

There shall be no cancellation, material change, potential exhaustion of aggregate limits or non-renewal of insurance coverage(s) without thirty (30) days written notice from the Contractor or its insurer(s) to the Department of ____________.  Any failure to comply with the reporting provisions of this clause shall constitute a material breach of Contract and shall be grounds for immediate termination of this Contract.

When do they apply?

  • Standard for all contracts requiring insurance.

Notes

  • Notice of Cancellation or Change provides notification to the state if the Contractor’s insurance coverages are canceled or not renewed, or if there is a possibility of the policy limits being exhausted during the contract period.

  • On rare occasions (very large or high-risk projects) the insurer needs to issue a policy endorsement that states that the insurer will provide a notice of cancellation to the state.  Agencies need to follow-up to obtain a copy of the policy, and assure that such an endorsement is issued.

  • Wording on the Certificate of Insurance to the effect of  “the insurer affording coverage will endeavor to mail written notice to the certificate holder named here in, but failure to mail such notice shall impose no obligation or liability of any kind upon the insurer” is not acceptable.  The statement above without the words “endeavor to” would be acceptable.  A pen and ink change initialed by all parties is also acceptable.

​Clause

As evidence of the insurance coverages required by this Contract, the Contractor shall furnish Certificate(s) of Insurance to the Department of __________ prior to the award of the Contract if required by the procurement document, but in all events prior to Contractor’s commencement of work under this Contract.  The Certificate(s) will specify all of the parties who are endorsed on the policy as Additional Insureds (or Loss Payees).  Insurance coverages required under this Contract shall be obtained from insurance companies acceptable to the Department of ______________. The Contractor shall pay for all deductibles, self-insured retention and/or self-insurance included hereunder.

When do they apply?

  • Standard for all contracts requiring insurance.

Notes

  • Requires the Contractor to provide you with proof of insurance at the beginning of the contract period and prior to the commencement of work. Make sure that the coverage and policy limits match the contract requirements. Look at the policy effective date and expiration dates to make sure that they coincide with the contract term. If not, request another certificate before the policy expires.

  • On rare occasions (very large or high risk projects), it is important that insurance coverages be obtained from an acceptable insurance company with a sound financial rating by AM Best of no less than “A”.  (Note – Due to the current market conditions agencies may want to consider companies at the B+ level.) In these cases, this language should be added to the clause.

  • Certificates of Insurance are often inadequate to apprise the agency of the scope of the Exclusions from coverage.  If you are unsure if the Contractor´s insurance will cover the risks of the project, complete copies of insurance policies may be a safer method of managing the risks.

  • The certificate should read “Endorsed on the policy as Additional Insureds."

Clause

If any of the required liability insurance is on a claims made basis and does not include an extended reporting period of at least 24 months, then Contractor shall maintain continuous claims made liability coverage, provided the effective date of the continuous claims made coverage is on or before the effective date of the Contract, for a minimum of 24 months following the later of:

  1. Contractor 's completion and Agency's acceptance of all Services required under the Contract, or
  2. Agency or Contractor termination of this Contract, or
  3. The expiration of all warranty periods provided under this Contract.​

When do they apply?

  • Standard for all contracts requiring insurance.

Notes

  • Tail coverage extends the time to report a claim, that occurred during the time the "claims made" policy was in force, but was not discovered until after the policy expired.