Many insurance contracts, including the CCDC 2, have provisions spelling out the obligations of the parties to get insurance for themselves or others. Too often, these provisions are misunderstood or ignored. Parties to construction contracts should know their insurance rights and obligations, how to ensure compliance, and what happens if compliance is imperfect or non-existent. The precise insurance requirements may vary between construction agreements. This article reviews the standard insurance provisions of the CCDC 2, the basis of many construction contracts.

The insurance provisions in the CCDC 2 – 1994 are found in General Condition 11.1. The Contractor is compelled to provide, maintain, and pay for the specified insurance and give the Owner confirmation that the insurance is in place. The rest of GC 11.1 sets out the required types and amounts of insurance and who must be covered. Parties covered by an insurance policy are known as insureds.

The first insurance type mentioned in GC 11.1 is general liability insurance. This covers insureds for property damage and personal injury claims made by others. The general liability insurance must provide the Contractor, the Owner and the Consultant with $2,000,000 in protection for each occurrence (essentially, each accident) with a deductible no greater than $2,500. Regarding the precise types of claims that must be covered, GC 11.1 says the policy must provide at least as much protection as that given by the standard policy wording issued by the Insurance Bureau of Canada in Form 2100. The coverage must remain in place from the commencement of the work until the date of the final certificate for payment. Extended coverage, known as completed operations hazards, must be kept in place for six years following substantial performance of the work.

General liability policies usually exclude coverage for losses connected to use and operation of automobiles, aircraft and watercraft. As a result, GC 11.1 specifically directs the Contractor to obtain automobile, aircraft and watercraft liability insurance for all such vehicles owned or leased by the Contractor and used to perform the Work. Again, the amount of insurance protection is $2,000,000 per occurrence.

In addition to liability insurance, GC 11.1. compels the Contractor to carry property insurance. Property insurance covers loss of or damage to the insured’s own property. Again, the Contractor, the Owner, and Consultant must be insured under the policy. The minimum dollar amount of insurance is the Contract Price and the full value of Products that are specified to be provided by the Owner for incorporation into the Work. The deductible can be no more than $2,500. The types of risks and property that must be covered are set out in Form 4042 issued by the Insurance Bureau of Canada. Coverage must be in place continuously until 10 days after the final certificate for payment.

The Contractor is also required to get boiler and machinery insurance covering the Contractor, the Owner and the Consultant. The dollar value of coverage must be no less than the replacement value of the boilers, pressure vessels and other "insurable objects forming part of the Work". The standard "Comprehensive Boiler and Machinery Form" sets out the minimum coverage dictated by the CCDC 2. The insurance must be kept in place from commencement of use or operation of the insured equipment until ten days after the final certificate for payment.

Finally, GC 11.1 obliges the Contractor to get "all risks" contractors’ equipment insurance covering construction machinery and equipment used by the Contractor for performance of the Work. It seems odd that the CCDC 2 compels the Contractor to insure its own equipment but this indirectly benefits the Owner by ensuring loss of or damage to the Contractor’s equipment will not affect the Contractor’s ability to complete the Work. Also, GC 11.1 dictates that the insurance policy must contain wording preventing the insurance company from trying to recover any loss or damage pay outs from the Owner. There is no specified standard form for this type of insurance. However, GC 11.1 says the form of policy obtained must be acceptable to the Owner.

If you have promised to get insurance for others, you first need to ensure they are named as "insureds" on the required policy. In addition, you need to make sure you obtain:

• the right types of insurance (e.g. general liability, property, etc.);

• coverage matching or exceeding that set out in any specified standard forms;

• at least the minimum required dollar amount of coverage;

• the proper deductible amount; and

• the proper duration of coverage.

If you neglect your contractual obligations to get proper insurance for others, you could be liable to pay for their losses that would otherwise have been insured. If you obtained no insurance for them, you might pay the entire loss up to the prescribed dollar limits that should have been covered by the insurance policy. If you obtained less than the required minimum coverage or if you got a larger than permitted deductible, you may be on the hook to pay the difference. You might also be barred from pursuing those you promised to insure for your own losses or damage.

If others fail to meet their obligations to cover you with proper insurance, you can sue them for any loss that would otherwise have been insured. However, it costs money to sue and this right is of little value if they have no assets or insurance against which you can recover. It is far better to make sure they have put the required insurance coverage in place before you suffer a loss.

What can be included in the amount of the claim of builders lien?

A claim of builders lien can only be for the price of the work performed on, or materials supplied to, the land against which the claim of lien is sought, to the extent that the price remains unpaid. This is because the purpose of the Act is to ensure that those persons who contribute value to land receive at least some compensation for that added value. However, because the claim of builders lien is an extraordinary remedy, there are certain restrictions on what can be included in a claim of lien. A claim of lien can not include such things as:

• Interest on amount owing

• Overhead office costs

• Unliquidated damages

• Work or materials supplied to the same owner, but on different property

Are there penalties for improperly filing a claim of lien?Yes. The Act has a specific section which makes a person who files a lien against the wrong property or interest in the property liable to the owner of that property for costs and damages incurred by that owner. Consequently, the mistaken filing could result in the lien claimant having to reimburse the owner of the misidentified property to, for example, have his lawyer remove the claim of lien. A more serious consequence would be where the improperly filed claim of lien delays or even causes the collapse of a land sale, and the lien claimant may be responsible to the owner for damages as a result.

Another serious consequence of an improperly filed claim of lien is that, by the time the error has been discovered, the time limit to file a claim of lien against the correct property may have expired.

Additionally, if a lien claimant knowingly files a claim of lien that contains a false statement, the Act allows the Court to impose a fine on the lien claimant of up to either $2,000.00 or the amount by which the amount stated to be owing in the claim of lien exceeds the actual amount owing. For example, if a lien claimant states in the claim of lien that $50,000.00 is owing, but the owner or contractor is able to establish that only $30,000.00 is owing and that at the time the claim of lien was filed, the claimant clearly knew that only $30,000.00 was owing, then in addition to only establishing the lower amount for enforcement purposes, the lien claimant could receive a fine of anywhere up to $20,000.00. Consequently, it is important for a lien claimant to not overstate the amount of the money owing to the lien claimant.