Don’t Overlook this Potential Gap in your Insurance Coverage
As project schedules get more compressed, I am increasingly seeing projects that must start construction BEFORE the contract is fully executed by utilizing either a Letter of Intent (LOI) or a Notice to Proceed (NTP). The value and scope of the construction work, authorized under a LOI or NTP, can range from a fraction of the total project cost, to as much as 100% of the full contract amount.
In many situations, despite having a certificate of insurance in place prior to the General Contractor commencing work on the property, insurance coverage only comes into effect when the contract is executed. This means that if any work is authorized to begin prior to the full execution of the contract, the owner and other involved parties could potentially be exposed to liability.
To avoid any potential gaps in coverage during this phase, it is imperative that the owner ensure that the NTP or LOI:
- Are reviewed, in conjunction with the General Contractor’s insurance policies, by their legal and insurance representatives
- References or reiterates the owner’s “Insurance Requirements” clause from the contract.
In addition to full insurance coverage, the best policy for minimizing risk exposure is to have solid project management processes in place including smarter labor management, sequencing, and team coordination. For more project management tips, follow us on LinkedIn, Twitter, and Facebook.