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By: Saurabh Bangar

Construction contracts often require insurance protections using familiar terms: “primary and non-contributory,” “waiver of subrogation,” and “additional insured.” Those words create contractual obligations, but do not themselves amend an insurance policy. If the policy does not provide the promised protection, the insured may face an uninsured liability and a separate claim for breach of its obligation to obtain insurance.

Claims Obligations: When the Contract and Policy Pull in Different Directions

Insurance policies generally require prompt notice, cooperation, delivery of legal documents, preservation of evidence, and insurer consent before voluntary payments or settlements. Construction contracts may separately require a party to repair damage immediately, indemnify and defend another party, or assume responsibility for a loss.

Those obligations can collide. A contractor may comply with an indemnity provision by admitting responsibility or paying remediation costs, while potentially prejudicing coverage by acting without the insurer’s consent. Conversely, waiting for the insurer’s direction may place the contractor in breach of contractual obligations concerning emergency work or site protection.

The contract should distinguish urgent measures needed to protect persons or property from the later adjustment and settlement of the claim. It should also identify who must notify insurers, preserve damaged materials, provide project records, and coordinate the defence. This is particularly important where the owner places the builder’s risk policy but the contractor controls the site and possesses the evidence required for a proof of loss.

A Contractual Requirement Does Not Amend the Policy

More than one policy may respond to a construction loss, including a wrap-up policy, a contractor’s annual commercial general liability policy, an owner’s policy, or coverage available to an additional insured. Construction contracts commonly attempt to establish priority by requiring one policy to be “primary and non-contributory.”

That wording is a promise between the contracting parties. By itself, it does not amend either policy or conclusively determine contribution between insurers. The promised priority should be reflected in the policy wording or an endorsement. If it is not, the insured may have obtained coverage but still breached the construction contract by failing to procure the required terms. Meanwhile, the insurers may determine priority under their respective “other insurance” provisions.

The review should therefore go beyond the certificate of insurance. The certificate may confirm limits and insured names, but the policy and endorsements determine whether the required priority, additional-insured status, cross-liability protection, and separation-of-insureds wording are actually provided.

Waiver of Claims Is Not Necessarily Waiver of Subrogation

After paying a property loss, an insurer may acquire the insured’s recovery rights against a responsible project participant. Section 36 of British Columbia’s Insurance Act addresses an insurer’s subrogation rights after paying or assuming liability for a loss. Construction contracts often seek to prevent recovery against project participants by including waivers of claims or requiring waivers of subrogation.

Those concepts must be kept distinct. A contractual waiver of claims governs the parties’ rights against each other. A waiver of subrogation concerns the insurer’s ability to pursue the insured’s rights after payment. A contract may require the insured to obtain that protection, but the insurer’s recovery rights may remain unless the policy permits the pre-loss waiver or contains the necessary endorsement.

Practical Takeaways

The scope of each required protection also matters. The relevant provisions should identify the parties intended to be protected, including appropriate subcontractors and consultants; whether protection applies to losses covered by insurance or only proceeds actually received; and whether it continues after completion. Gaps between the prime contract, subcontracts, and policy may leave a participant exposed despite the project’s intended allocation of risk.
Construction insurance clauses should therefore be tested against the actual policy wording. The central legal question is not simply whether insurance exists, but whether the policy delivers the protection the construction contract requires.

The foregoing is provided for general informational purposes only, does not constitute legal advice, and shall not be relied upon as legal advice. Legal advice should be obtained concerning the particular contract, policy, project, and circumstances. Please contact the author for advice concerning a specific matter.

If you have any questions regarding this article, please contact the author, Saurabh Bangar, or any member of our Construction Law group.