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Suggested Contract Language Insurance Requirements

Dear Contract Analyst:

When deciding what type of insurance to require, the main question you should ask yourself is "What could go wrong?" You need to note who can potentially be injured and what property can potentially be damaged by negligent acts of the contractor.

We feel that all parts of Section I and Section II should be in the majority of contracts. Occasionally, the Automobile Liability may be dropped if it is clear that vehicles will not be used in performance of the contract. In addition, Workers' Compensation may be dropped if the contractor does not have any employees.

We have also included specialty coverages in Section III. These are needed if the contract has special risks that are not covered under a general liability policy, such as legal or medical malpractice, pollution liability, or use of aviation. Also, with construction of new structures or major remodeling, builders' risks should be considered. With money handling, coverage is available for criminal acts.

If you have any questions, please contact our Insurance Services Unit team members:

Carrie Willson
(Staff Risk Manager - Insurance Services)
916.376.5278
carrie.willson@dgs.ca.gov

Trevor DeAnda
(Associate Risk Analyst)
trevor.deanda@dgs.ca.gov
916.376.5305

Christopher Carroll
(Associate Risk Analyst)
christopher.carroll@dgs.ca.gov
916.376.5279

Lynan Graf
(Associate Risk Analyst)
916.376.5290
lynan.graf@dgs.ca.gov


 Section I. General Requirements

A) General Requirement: Acceptable to DGS

Insurance companies must be acceptable to the Department of General Services. If self insured, review of financial information may be required.

Why this is important:

ORIM was basically created as a result of Government Code Section 11007, which requires DGS to review and approve insurance purchased by the State of California. More specifically, State Contracting Manual Section 7.40 requires that evidence of insurance in state contracts be acceptable to DGS/ORIM.
ORIM purchases insurance for many state agencies and departments, therefore, we work with various brokers and insurance companies, track insurance costs and monitor changes in the insurance marketplace. Our goal is to ensure that, should a claim be filed, that the contractor's insurance company will have the resources to defend and pay the claim. 


 
B) General Requirement: Coverage Term

Coverage needs to be in force for complete term of contract. If insurance expires during the term of the contract, a new certificate must be received by the State at least ten (10) days prior to the expiration of this insurance. This new insurance must still meet the terms of the original contract.

Why this is important:

This paragraph restates the obvious, that the contractor's must have continuous insurance coverage throughout the contract period. We do not want contractors claiming that they thought the only requirement was to have insurance at the time the contract was bid. 



C) General Requirement: Cancellation

Contractor is responsible to notify the State within 5 business days of any cancellation, non-renewal or material change that affects required insurance coverage. In the event Contractor fails to keep in effect at all times the specified insurance coverage, the State may, in addition to any other remedies it may have, terminate this Contract upon the occurrence of such event, subject to the provisions of this Contract. 

Why this is important:

This paragraph requires the contractor to notify the state if the policy is being cancelled. We need notice in order to ensure that the contractor secures coverage from another carrier and to assess whether the contract should be cancelled if the contractor does not maintain the required insurance.


D) General Requirement: Deductibles
 
Contractor is responsible for any deductible or self-insured retention contained within the insurance program.

Why this is important:

If a contractor has a deductible, the insurance company pays the claim and collects the deductible from the contractor. With a self-insured retention, the contractor pays claims up to a certain level. Above that level, the insurance company reimburses the contractor. In either case, there is an uninsured portion which is the responsibility of the contractor. This paragraph restates the contractor's responsibility for this uninsured liability. 



E) General Requirement: Contract Termination

In the event contractor fails to keep in effect at all times the specified insurance coverage, the State may, in addition to any other remedies it may have, terminate the contract upon the occurrence of such event, subject to the provisions of the contract.

Why this is important:

This paragraph serves notice to the contractor the importance of maintaining the required insurance throughout the life of the contract and that we will take steps to terminate the contract if the required insurance in not maintained. 



F) General Requirement: Primary Insurance

Any insurance required to be carried shall be primary, and not excess, to any other insurance carried by the State.

Why this is important:

This paragraph states that, in the event of a claim against both the contractor and the state, the contractor's insurance will respond first, rather contribute to whatever insurance the state maintains, therefore, the contractor's insurance is primary rather than excess coverage.

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Section II. Typical Insurance Requirements

A) Typical Requirement: Commercial General Liability

Contractor shall maintain general liability with limits of not less than $[Insert Limit of Insurance] per occurrence for bodily injury and property damage liability combined. The policy shall include coverage for liabilities arising out of premises, operations, independent contractors, products, completed operations, personal & advertising injury, and liability assumed under an insured contract. This insurance shall apply separately to each insured against whom claim is made or suit is brought subject to the contractor's limit of liability.
The policy must include the State of California, its officers, agents, employees and servants as additional insureds, but only insofar as the operations under the contract are concerned.

When do I require General Liability and what limits should I request?

All contracts should request that contractors maintain general liability insurance. In addition, the general liability policy must be endorsed to include the state as an additional insured. This will insure that claims made against the state as a result of the work performed under the contract will be defended and paid by the contractor's insurance company.
With respect to limits of insurance, the majority of state contracts require $1,000,000 per occurrence. If new structures are being built or the contract amount exceeds $50,000, consideration should be given to requiring $2,000,000, $5,000,000 or even $10,000,000 per occurrence. ORIM can assist in assigning an appropriate amount during the contracting process.
 


B) Typical Requirement: Automobile Liability

Contractor shall maintain motor vehicle liability with limits of not less than $[Insert Limit of Insurance] per accident. Such insurance shall cover liability arising out of a motor vehicle including owned, hired, and non-owned motor vehicles.

When do I require Auto Liability and what limits should I request?

If the contractor will likely be using vehicles to complete the project or driving a vehicle onto State property, automobile liability insurance should be required.
With respect to limits of insurance, the minimum amount required is $1,000,000 per occurrence. (Note; $1,000,000 per occurrence is the minimum acceptable limit of insurance; higher limits should be required in cases of higher than usual risks.) 



C) Typical Requirement: Workers' Compensation/Employer's Liability

Contractor shall maintain statutory workers' compensation and employer's liability coverage for all its employees who will be engaged in the performance of the contract, including special coverage extensions where applicable. Employer's liability limits of $1,000,000 shall be required.

When do I require Workers' Compensation/Employer's Liability and what limits should I request?

If the contractor has employees, workers' compensation coverage is mandatory. If the contractor will be using the employees on the project, workers' compensation/employer's liability language should be required in the contract.
In some cases, the owner will complete the work called for in the contract without hiring staff, therefore, these contracts do not need the workers' compensation/employer's liability language. An example is an attorney who is a sole proprietor and has no employees. The attorney is not required by law to maintain workers' compensation coverage.
With respect to limits of insurance, contractors should be required to maintain statutory workers' compensation coverage and employer's liability at $1,000,000 per occurrence.
Special endorsements may be needed for United State Longshoreman's & Harbor and/or the Jones Act if work is being done on boats, docks, terminals and other areas adjoining navigable waterways. 

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Section III. Special Insurance Requirements

A) Special Requirement: Aircraft Liability

Contractor shall maintain Aircraft Liability with limits of not less than $[Insert Limit of Insurance] per occurrence and $[Insert Limit of Insurance] per seat for passengers.
The policy must include the State of California, its officers, agents, employees and servants as additional insureds, but only insofar as the operations under the contract are concerned. 



B) Special Requirement: Pollution Liability

Contractor shall maintain Pollution Liability covering the contractor's liability for bodily injury, property damage and environmental damage resulting from pollution and related cleanup costs incurred, all arising out of the work or services to be performed under this contract. Coverage shall be provided for both work performed on site, as well as during the transport of hazardous materials. Limits of not less than $[Insert Limit of Insurance] shall be provided.
The policy must include the State of California, its officers, agents, employees and servants as additional insureds, but only insofar as the operations under the contract are concerned. 



C) Special Requirement: Professional Liability

Contractor shall maintain Professional Liability covering any damages caused by an error, omission or any negligent acts. Limits of not less than $[Insert Limit of Insurance] shall be provided. 



D) Special Requirement: Builder's Risk/Installation Floater

During the term of this contract, Contractor shall maintain in force, at its own expense, Builder's Risk / Installation Floater covering contractor's labor, materials and equipment to be used for completion of the work performed under this contract against all risks of direct physical loss, excluding earthquake and flood, for an amount equal to the full amount of the contract improvements. 



E) Special Requirement: Fidelity Bond/Crime Insurance

Contractor shall maintain Employee Dishonesty and, when applicable, Inside/Outside Money & Securities coverages for state-owned property in the care, custody and control of the contractor. Coverage limits shall not be less than the amount scheduled in the contract. The policy shall include as loss payee [Insert name of your agency/department]. 

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