Contract Administration: Insurance Certificates

Most construction contracts have (or should have) provisions requiring parties to obtain and maintain certain insurance coverage. Typically, contractors are required to carry comprehensive general liability insurance and worker's compensation insurance. Subcontracts like wise generally require subcontractors to provide the same types of insurance coverage.

Many contract and subcontract forms mandate that the contractors or subcontractors must furnish certificates proving that they have the required insurance in force before commencing work on the project. They may also provide that unless proof of insurance is given, no progress payments, will be made to the party who fails to submit insurance certificates.

What if a party does not obtain the required insurance?

In a recent decision an Illinois appeals court ruled that a contractor waived the right to have two subcontractors furnish the insurance required by their subcontracts because the contractor failed to insist that they submit certificates of insurance before allowing them to start work on the project. Whalenv. K-MartCorp., 519 N.E.2d 991 (Ill. App. 1988). The contractor also made payments to the subcontractors without requiring their proof of insurance.

The court decision chastised the contractor for neglecting to properly administer its subcontracts. By not having insisted that its subcontractors provide certificates of insurance, the court reasoned that the subs were led to believe that the contractor did not expect them to maintain the required insurance. The ruling was harsh, resulting in the contractor having been denied damages against the subs for their failure to provide the required insurance coverage. It emphasized that parties who have protections and requirements provided for in their contracts are obligated to exercise and enforce those powers. If they fail, the courts may not assist.

A word to the wise: Don't expect some court to do your work. Competent contract administration requires that you enforce your contract - particularly if it provides a convenient procedure for enforcement-such as a right to keep a contractor from working or a right to refuse payment.