Chapter 26 - § 26.4 • CLAUSES ALLOCATING THE COST OF COVERING RISKS

• Jurisdiction: Colorado

§ 26.4 • CLAUSES ALLOCATING THE COST OF COVERING RISKS

Any party involved in construction projects has the risk of potential loss. The most obvious risk is the fixed price of the contract. Many risks that a party might have under law can potentially be reallocated by the contract. For example, a cost-plus contract, depending on how "cost-plus" is defined in the contract, reallocates many risks.

§ 26.4.1-Insurance Coverage

Example: Contractor's aggregate liability arising out of or in connection with this Agreement, regardless of the theory of recovery, shall not exceed the amounts of insurance required by this Agreement to be maintained, except as to claims arising from damages caused by Contractor's willful, wanton, or intentional misconduct.

One of the most common means of risk allocation is to provide that the owner will carry certain kinds and types of insurance coverage and that all contractors, subcontractors, etc., shall be named as additional insureds thereof. This affords a substantial benefit. Most owners want to have basic coverage regardless of what the contract has defined as its responsibility. In a situation where the owner, the prime contractor, and the subcontractor all buy essentially the same insurance coverage, it can result in an increase in the total cost of the project. Thus, it is often desirable to have one party carry the insurance coverage that covers all parties on the project. Such insurance coverage could potentially include builder's risk, commercial general liability, and professional errors and omissions.

Enforceability

The following clause was upheld in Florida Power & Light Co. v. Mid-Valley, Inc.:¹²³

Upon written request of Owner received within five days of the acceptance hereof, Engineer will provide additional insurance, if available . . . and the Owner will pay Engineer an agreed amount for the increased coverage. Engineer's liability to Owner for any indemnity commitments or for any damages arising in any way out of the performance of this contract is limited to such insurance coverages and amounts. In no event shall Engineer be liable for any indirect, special or consequential loss or damage arising out of the performance of services hereunder including, but not limited to, loss of use, loss of profit, or business interruption whether caused by negligence of Engineer, or otherwise, and Owner shall indemnify and hold Engineer harmless from any such damages or liability.¹²⁴

Requirements for a valid limitation of...