{"id":895119,"date":"2018-10-25T11:01:14","date_gmt":"2018-10-25T17:01:14","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=895119"},"modified":"2018-10-25T11:01:14","modified_gmt":"2018-10-25T17:01:14","slug":"word-wise-aia-revised-contract-documents-lead-new-unanticipated-risks-part","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/word-wise-aia-revised-contract-documents-lead-new-unanticipated-risks-part\/","title":{"rendered":"A Word to the Wise: The AIA Revised Contract Documents Could Lead to New and Unanticipated Risks &#8211; Part I"},"content":{"rendered":"<p>George Talarico | <a href=\"https:\/\/www.constructionexec.com\/article\/a-word-to-the-wise--the-aia-revised-contract-documents-could-lead-to-new-and-unanticipated-risks\" target=\"_blank\" rel=\"noopener\">Construction Executive<\/a> | September 11, 2018<\/p>\n<div class=\"row margin-space\">\n<div class=\"col-md-12\">\n<p>The contract documents published by the American Institute of Architects are widely utilized by the construction industry. As such, prudent participants in the construction process analyze these documents in order to appreciate their legal rights and obligations. This analysis is particularly important in light of the recently released decennial revisions to AIA documents A101, A201 and B101.<sup>1<\/sup><\/p>\n<p>While it is still too soon to gauge the effect of these revisions, their impact could be far-reaching. These revisions, among other things, could lead to a significant cost increase and shifting of liability amongst the parties. Anyone involved in the construction project as owner, contractor or architect must consider these changes and be cautious before utilizing the new contract forms. This article will explore some of the revisions to A201 and discuss possible implications.<sup>2<\/sup><\/p>\n<h5><strong>GENERAL CONDITIONS<\/strong><\/h5>\n<p>A201 addresses the General Conditions portion of construction contracts. A201 is the most crucial section of the AIA documents since the terms of A201 are often incorporated elsewhere in the construction contract and changes in A201 will ripple through the entire AIA contract. Moreover, the General Conditions portion of the AIA contract documents cover commonly litigated portions of a construction contract such as insurance, payment, change orders and claims and disputes.<\/p>\n<h5><strong>REVISED INSURANCE TERMS<\/strong><\/h5>\n<p>The most obvious change to A201 is that the insurance requirements of Article 11 have largely been relocated to a separate Exhibit A to the AIA contract documents. Article 11 still contains key insurance requirements such as:<\/p>\n<ul>\n<li>the owner\u2019s builder\u2019s risk property policy which insures the property on the site during construction, including property of the contractor and its subcontractors and suppliers;<\/li>\n<li>the contractor\u2019s commercial general liability policy naming the owner and architect (including the architect\u2019s consultants) as additional insureds; and,<\/li>\n<li>the parties and their insurers subrogation waiver of rights against one another.<\/li>\n<\/ul>\n<p>Exhibit A, titled \u201cInsurance and Bonds,\u201d however, includes more thorough descriptions and requirements for insurance. Some of the requirements go far beyond those of the 2007 version of A201 and are likely to increase insurance costs.<\/p>\n<h5><strong>REVISIONS THAT AFFECT OWNER\u2019S REQUIRED INSURANCE<\/strong><\/h5>\n<p>Article 2 \u00a7 2.3.1 details the insurance which the owner must acquire. The owner is obligated to purchase builder\u2019s risk insurance that specifically covers losses from \u201cerror omission, or deficiency in construction methods, design, specification, workmanship, or materials.\u201d\u00a0<sup>3<\/sup>\u00a0Moreover, the builder\u2019s risk policy must insure the owner as well as contractors and subcontractors.<\/p>\n<p>Article A2.3 could dramatically affect the risks associated with construction defects \u2013 one of the most hotly litigated areas of construction law. Under the prior AIA contract documents, if a defect allegedly caused damage to the owner\u2019s property, the owner would likely have made a claim against the CGL policies of the contractor, subcontractor or perhaps the architect. Whether or not CGL policies cover damage caused by construction defects is not a settled issue.<\/p>\n<p>CGL insurers have denied coverage contending, inter alia, that construction defects do not constitute an \u2018occurrence\u2019 under the policy. The specific policy terms and the law of the relevant jurisdiction will determine the success of the insurers\u2019 denial of coverage.<sup>4<\/sup>\u00a0In any event, the new insurance requirements would offer clarity as to which policy covers construction defects and could avoid the problems presented by seeking coverage for construction defects under a CGL policy. Builder\u2019s risk policies, however, will only provide a temporary and likely expensive solution and will not cover latent defects discovered after the builder\u2019s risk policy expires \u2013 usually about one year after substantial completion of the project.<sup>5\u00a0<\/sup>\u00a0It remains to be seen if owners will actually purchase these expensive builder\u2019s risk policies or if the insurers even will write them.<sup>6<\/sup><\/p>\n<h5><strong>REVISIONS THAT AFFECT CONTRACTOR\u2019S REQUIRED INSURANCE<\/strong><\/h5>\n<p>As in the 2007 version, the contractor is required to maintain CGL, automobile, workers\u2019 compensation and employers\u2019 liability insurance.<sup>7<\/sup>\u00a0The 2017 updates, however, now contain requirements that the contractor provide professional liability, pollution liability, maritime liability, and manned or unmanned aircraft liability insurance if applicable to the work being performed.<sup>8<\/sup>\u00a0Further, the new revisions specify that the contractor\u2019s required insurance must be maintained through the \u201ccorrection of work\u201d period, rather than the date of final payment, as previously required.<\/p>\n<p>Consistent with the prior versions of the AIA documents, the 2017 revision requires the contractor to name the owner, architect and architect\u2019s consultants as additional insureds. The 2017 version, however, dictates the amount of coverage to be provided to these additional insureds. Exhibit A Section A.3.1.3 details: that the additional insured coverage \u201cshall be primary and non-contributory . . . [and] \u201c[t]o the extent commercially available, the additional insured coverage shall be no less than that provided by Insurance Services Office in three ISO three endorsements.<sup>9<\/sup>\u00a0This raises two significant questions:<\/p>\n<ul>\n<li>if the contractor\u2019s liability policy fails to provide the required level of coverage, is the contractor liable for any shortfall; and<\/li>\n<li>since these policies are required to be \u201cnon-contributory\u201d which party must pay the deductible or SIR under the additional insured coverage?<\/li>\n<\/ul>\n<p>Part II\u00a0addresses revisions that affect dispute resolution, supervision and construction procedures, shop drawings and contract termination.<\/p>\n<\/div>\n<\/div>\n<div class=\"row  ng-scope\">\n<div class=\"col-md-12 redbox\">\n<div class=\"ng-binding\">\n<p><sup>1<\/sup>\u00a0The AIA announced the release of its 2017 documents in April 2017.<\/p>\n<p><sup>2<\/sup>The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis &amp; Gross P.C.<\/p>\n<p><sup>3<\/sup>\u00a0A201-2017, Exhibit A \u00a7 A.2.3.1.1.<\/p>\n<p><sup>4<\/sup>\u00a0See generally Nautilus Ins. Co. v. Bd. of Dirs. of Regal Lofts Condo. Ass\u2019n., 764 F.3d 726, 2014 U.S. App. LEXIS 16250 (\u201cdamages that are the natural and ordinary consequences of faulty workmanship do not constitute an \u2018occurrence\u2019 or \u2018accident.\u2019\u201d (citations omitted)); Exeter Bldg. Corp. v. Scottsdale Ins. Co., 913 N.Y.S.2d 733, 79 A.D.3d 927, 2010 N.Y. App. Div. LEXIS 9453, 2010 NY Slip Op 9361 (\u201cCGL policies like the one in this case are not intended to provide indemnification to contractors for claims that their work product is defective\u201d); but see, Cypress Point Condo. Ass\u2019n v. Adria Towers, L.L.C., 441 N.J. Super. 369, 118 A.3d 1080, 2015 N.J. Super. LEXIS 114 (App. Div. 2015) (\u201cconsequential water damage to the completed and nondefective portions\u201d of Cypress Point &#8212; was an &#8220;accident,&#8221; it is an &#8220;occurrence&#8221; under the policies and is therefore covered\u201d), aff\u2019d, 226 N.J. 403, 143 A.3d 273, 2016 N.J. LEXIS 847 (2016); Ameron Int\u2019l. Corp. v. Am. Home Assur. Co., 2011 U.S. Dist. LEXIS 61486, 2011 WL 2261195 (unintentional supplying of defective products constitutes occurrence, if contractor did not intentionally supply faulty product).<\/p>\n<p><sup>5<\/sup>\u00a0A201-2017, Exhibit A \u00a7 A.2.3.1.3; A201-2017 \u00a712.2.2.<\/p>\n<p><sup>6<\/sup>\u00a0The London Engineering Group (\u201cLEG\u201d), a consultative body comprised of insurers and reinsurers who underwrite risks involving engineering and construction, has created standard exclusion language that allows some coverage in builder\u2019s risk policies for losses relating to defects. While the LEG endorsements are widely used in foreign construction projects, they are rarely used in the United States.<\/p>\n<p><sup>7<\/sup>\u00a0A201-2017, Exhibit A \u00a7 A.3.<\/p>\n<p><sup>8\u00a0<\/sup>A201-2017, Exhibit A\u00a7\u00a7 A.3.2.3 \u2013 A 3.2.12<\/p>\n<p><sup>9<\/sup>\u00a0CG 20 10 07 04, CG 20 37 07 04 and CG 20 32 07 04.<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>George Talarico | Construction Executive | September 11, 2018 The contract documents published by the American Institute of Architects are widely utilized by the construction industry. As such, prudent participants in the construction process analyze these documents in order to appreciate their legal rights and obligations. This analysis is particularly important in light of the&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/word-wise-aia-revised-contract-documents-lead-new-unanticipated-risks-part\/\">Continue reading <span class=\"screen-reader-text\">A Word to the Wise: The AIA Revised Contract Documents Could Lead to New and Unanticipated Risks &#8211; Part I<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,10417,72],"class_list":["post-895119","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-american-institute-of-architects","tag-construction-contracts-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A Word to the Wise: The AIA Revised Contract Documents Could Lead to New and Unanticipated Risks - Part I - Advise &amp; Consult, Inc.<\/title>\n<meta name=\"description\" content=\"contract documents published by the AIA are widely utilized by the construction industry. 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