Insurance Clause in Construction Contract

November 18, 2021

Construction contracts are essential legal agreements that protect both the owner and the contractor during the construction process. Among the most critical clauses in a construction contract is the insurance clause. This clause specifies the types and extent of insurance coverage that a contractor must carry to protect the owner from financial risk.

Construction insurance is crucial, especially in large construction projects, as they pose significant risks to both the contractor and the owner. Without proper insurance, a construction project can result in financial loss, unexpected legal claims, and potential bankruptcy for both parties.

Types of Construction Insurance

The types of insurance required for a construction project depend on the contractual agreement between the owner and the contractor. However, the most common types of construction insurance include:

1. General Liability Insurance: This type of insurance covers damages to property, bodily injury, and personal injury, including wrongful death as a result of the contractor`s work.

2. Workers` Compensation Insurance: This insurance covers employees who get injured while working on the project, including medical expenses and lost wages.

3. Commercial Property Insurance: This insurance covers damages to the property during construction due to events such as theft, fire, or natural disasters.

4. Professional Liability Insurance: This insurance covers claims arising from errors or omissions made by a professional in the construction project, such as architects or engineers.

5. Builder`s Risk Insurance: This insurance covers damages to the project during construction, including theft, fire, and natural disasters.

The Importance of an Insurance Clause in a Construction Contract

An insurance clause in a construction contract ensures that the contractor has adequate insurance coverage, which is essential in protecting both the contractor and the owner. The insurance clause specifies the types of insurance required, the minimum coverage amounts, and the duration of the insurance policy.

Including an insurance clause in the construction contract also protects the owner from financial loss due to unforeseen events during the construction project. For example, if there is damage to the property or an injury to a worker, the owner will not be liable for the cost of repairs or medical expenses incurred.

Additionally, the insurance clause also protects the contractor from potential lawsuits or legal claims arising from the construction project. With the required insurance coverage, the contractor can continue working on the project with the confidence that they are fully protected against potential financial risks.


In conclusion, an insurance clause in a construction contract is a crucial element that protects both the contractor and the owner from financial losses. This clause ensures that the contractor has adequate insurance coverage to mitigate potential risks during the construction project. As such, it is essential to engage an experienced attorney or construction professional to review and draft the insurance clause to ensure it meets the necessary legal requirements. With proper insurance in place, the construction project can proceed smoothly, protecting both the contractor and the owner from potential financial risks and legal claims.