Successful preservation projects require a lot of planning and behind-the-scenes support before work at the site ever begins. The National Trust’s legal division plays a crucial role in the ongoing stewardship of the 21 historic sites owned by the organization by putting contracts in place with all of a project’s team members. Some of the most important safeguards included in these contracts are requirements for adequate insurance coverage for each team member. Making sure that insurance is in place before beginning a project guarantees that if an accident, serious error, damage to structures or collections, or other unexpected issue arises, there will be insurance funds available to mitigate damage and successfully complete the project. The recent repairs and roof membrane replacement at the Painting Gallery at Philip Johnson’s Glass House provides an interesting example through which to consider the insurance needs of complex preservation projects.
Liability Coverage Requirements
Every architect, engineer, and contractor working on a construction project should maintain general commercial liability, automobile, and workers’ compensation insurance coverage. Similarly, for design projects, all architects, engineers, and conservators should maintain professional liability coverage, in addition to these other categories of insurance. For larger projects, requiring additional umbrella liability coverage may also be prudent. The bidding documents and contracts with each of these service providers should detail the amount of coverage that is required. If the project will require the use of subcontractors, it’s important to make certain that the contract’s insurance requirements extend to them as well. To ensure that the required coverage amounts are in place, and remain in place over the course of the project, contracts should also include a provision that requires the service providers to supply certificates of insurance that list the property owner as an additional insured and to provide written notification of any change in coverage.
In addition to requiring liability coverage, contracts for many larger scale construction projects also require contractors to secure bonds. Insurance bonds, or surety bonds, are a type of insurance agreement whereby an insurer agrees to uphold the contractual obligations of a third party. For construction projects, this means that the insurer will issue a bond that is a written promise to make good on the contractor’s contractual obligations to the owner if the contractor defaults.
The most common bond types used for construction projects are payment and performance bonds. Payment bonds guarantee that a contractor makes payments owed for materials and labor used to complete a project. Performance bonds guarantee satisfactory completion of a project through following the project’s specifications and meeting completion date requirements. Keep in mind that bonding expectations should be communicated to potential contractors upfront during the bid submission process. The price for these bonds is based on a percentage of the total contract value, and contractors will include the cost to obtain the bonds in their bid amount. Including a line item for payment and performance bonds in any pricing breakdown supplied to bidders offers a second opportunity to highlight and quantify the bonding requirement.
There are different reasons for requiring a service provider to maintain liability insurance versus insurance bonds. A simple thing to keep in mind is that liability insurance should always be required, while bonds may not be necessary for every project. Contractors normally maintain liability, auto, and workers’ compensation insurance as a part of the regular course of their business. In contrast, bonds are issued individually for each project, which is why there is an added cost for bonds. This added cost should not be the deciding factor in whether a project should include a bond. The amount charged for these bonds is generally small – usually in the range of 1 to 2 percent of the total contract value. For more complex or expensive projects, the additional protection and peace of mind that bonds provide can definitely be worth the additional expense.
Builder's Risk Insurance Coverage
Up to this point, the discussion has been focused on insurance that property owners should require service providers to maintain during a design or construction project. But property owners should also consider whether their own insurance needs are adequately met before beginning a new preservation project. While hopefully the owner has sufficient property insurance in place to meet the day-to-day coverage needs of a site, the special risks that can come with construction projects sometimes warrant a bit more protection. A builder’s risk policy can be helpful in this situation. Builder’s risk insurance is a type of property insurance that specifically covers damage that may occur during construction. It can include coverage for weather damage, theft or vandalism, as well as structural damage. Often this coverage can be added onto an existing real property insurance policy during the term of construction.
The Glass House
In the case of the roof repair and membrane replacement at the Painting Gallery at the Glass House, every category of insurance described above was used. To complete the project, the National Trust worked with a single construction firm who served as the prime contractor. The contractor hired subcontractors – notably a crane operator – to help complete some portions of the work. The terms of the bidding documents and construction contract required the contractor to supply a certificate of insurance showing proof of commercial liability, auto liability, worker’s compensation liability, and umbrella liability insurance in the required coverage amounts prior to mobilizing any activities on the project site. The contract also included a provision specifically requiring the subcontractors to provide a certificate of insurance prior to beginning work. This provision was targeted to ensure that the crane operator provided adequate proof of insurance prior to beginning work. Given the delicate nature of the work performed by the crane operator for this project, the specific provision addressing subcontractor insurance requirements was particularly important.
The contract also required the prime contractor to provide a payment and performance bond. The request for this bond was included in the bid solicitation materials so that the contractor could price the coverage into his bid.
The contract also required the National Trust, as the owner of the Glass House, to provide builder’s risk coverage. This is not a requirement in every construction contract. However, here it was decided that due to the unique nature and the scale of this project, obtaining this additional coverage was in the National Trust’s best interest.
The final insurance matter that was addressed in this project was one that doesn't come up too often in construction projects – the issue of fine arts insurance. The National Trust maintains fine arts insurance to protect its museum collections. This coverage is not often implicated in construction projects because any art objects that might be put at risk by the construction are temporarily relocated. As detailed in the post describing the roofing project, much of the art in the Painting Gallery was too large to remove without disassembling it, which would likely have harmed the pieces. A detailed plan was developed to protect the art in situ during construction. Because of this added risk, the National Trust ensured that it obtained approval from its fine arts insurer, and had adequate coverage in place, prior to beginning work on the site.
The brief explanation of insurance requirements included here should be helpful to start considering the insurance needs for your next preservation project. In making insurance decisions, many more factors should be taken into consideration than are addressed here. Full consultations with your lawyer and insurance agent should be used to help guide decision-making. Any cost incurred to have this consultation will certainly be money well spent should any issues with the project arise. At the National Trust, we are fortunate to have the opportunity to consult with National Trust Insurance Services on coverage questions for individual projects. National Trust Insurance Services provides this service to all of its clients. Hopefully, with this background information in hand it will be easier to start that conversation and to make sure that your next project is a success.