InsReqForContracts~1.docx

INSURANCE AND INDEMNIFICATION REQUIREMENTS

State of Nevada Risk Management Division

INSURANCE REQUIREMENTS FOR CONTRACTS

GENERAL INFORMATION

A. WHAT IS THE PURPOSE OF THIS DOCUMENT?

This document has been developed by the Risk Management Division to assist State agency contract managers in understanding and incorporating the State’s insurance requirements into contracts, requests for proposals (RFPs) leases and other agreements. Our goal is to provide easy-to-use guidelines that can be copied from our website into a contract document.

Indemnification language is required in all State contracts so that the responsibility for claims that may arise out of the course and scope of the contract will be transferred to the contractor. The insurance requirements ensure that the contractor has the financial resources to pay claims.

B. WHO SHOULD USE THIS MANUAL?

This manual will assist State staff who:

· Negotiate or formulate State contracts or leases

· Administer State contracts or leases

· Review and approve State contracts or leases

· Review and track insurance certificates or binders

C. TRANSFERRING RISK THROUGH CONTRACTS

The State transfers the risk of accidental loss through contracts and related laws or regulations. This transfer of risk is achieved by requiring the other party to the State contract, i.e., the "contractor”, "vendor", “permittee”, or "lessee", to protect themselves and the State against claims or judgments arising from their products, services, activities or use of State facilities. The best way to ensure that the transfer actually takes place, i.e., the loss will be paid by someone other than the State, is to require an indemnification agreement and insurance.

Bid specifications, contracts, leases and permit requirements should contain a clear description of the required insurance. In addition, they should contain a hold harmless and indemnification clause that works in conjunction with the insurance requirements. A hold harmless and indemnification clause is an agreement by which one party assumes the liability of another and agrees to defend them in the event of a claim. An indemnification agreement is the legal provision that transfers risk, while insurance provides the financial guarantee.

Insurance policies that financially support the hold harmless and indemnification clause may not automatically become effective upon execution of the contract. Coverage applies only when the contractor's insurance company issues the required insurance policies or endorses existing policies to match the insurance requirements of the contract.

As proof of coverage, most insurance agents and brokers will provide a document called a certificate of insurance. While a certificate is evidence that the contractor has an insurance policy, it does not guarantee that the required insurance provisions are in place. Even with this shortcoming, the certificate of insurance, if completed correctly, is the only practical means of confirming that coverage exists. In some situations it may be necessary to obtain and review the actual policy and specific endorsements.

This manual provides guidance on how to establish appropriate insurance requirements for a variety of contracts are discussed in this manual and sample insurance specifications are provided for each contract type.

D. GUIDE TO AUTOMOBILE LIABILITY EXEMPTION

Some contracts may not require contractors to use a vehicle in the performance of a service. Others may require vehicle use with a limited scope, i.e. a commute. “Commute” means a trip between the contractor’s home or principal place of business and a State location or destination. In these cases, where all contractors under an agreement travel only within a “commute, or do not drive at all, the State agency may decide not to include the automobile liability requirement.

There are several sample insurance requirements sections included in this manual that have been developed for those situations where the intended vehicle use is either limited to a commute or not required by the scope of services. Other sections may be revised to delete the automobile liability requirement, provided the contractor’s vehicle use is limited based on the above criteria. It is crucial that State staff know the likelihood of such limited use before deciding to eliminate the requirement. If State staff needs guidance from Risk Management on eliminating the automobile liability requirement, they will need to present the scope of services to Risk Management for evaluation.

Depending on vehicle usage, the State may reduce the automobile liability requirement form the standard $1,000,000 CSL to $300,000 CSL. However, the scope of services should be reviewed by Risk Management before any reduction in limits is granted.

E. GUIDE TO WORKERS’ COMPENSATION EXEMPTION

Some contractors may be exempt from purchasing workers’ compensation insurance. If the State contracts with a sole proprietor of a business, the workers’ compensation insurance requirement may be waived by completing the appropriate waiver form.

A Sole Proprietor, as referenced in NRS 616A.310 defines a “SOLE PROPRIETOR” as a self-employed owner of an unincorporated business and includes: working partners and members of working associations. Sole Proprietors can waive their rights to workers’ compensation benefits by completing the Sole Proprietor Waiver Form, which acknowledges that the sole proprietor is not an employee of the State and not entitled to workers’ compensation benefits. The sole proprietor must also acknowledge that if they have employees they must purchase workers’ compensation insurance for them.

In order to waive the workers’ compensation insurance requirement, the contractor cannot be a corporation, limited liability Company, partnership or a sole proprietor with employees. If the department authorizes a waiver of the workers’ compensation insurance requirement, the waiver form must be signed by the sole proprietor contractor. The signed waiver form should be kept in the department contract file.

F. WHEN TO REQUIRE PROFESSIONAL LIABILITY

Professional liability insurance protects against losses that occur when a "professional" fails to practice his or her art to the usual and customary standards of that profession. Therefore, there can be risks to the State associated with errors (or allegations of errors) in the professional’s work product or judgment.

Professional liability may have a different meaning when it relates to insurance rather than a "type" of State contract. In order to determine if you should require professional liability insurance, ask yourself:

If the answer is yes to either of these questions, then professional liability insurance should be required.

The types of losses that can occur under such circumstances are often excluded under general liability policies. They can be covered through separate professional liability insurance policies, also known as “errors and omissions” (E&O) liability insurance.

Examples of services that would require professional liability coverage include but are not limited to:

Because professional liability insurance is generally written on a claims-made basis, there is a concern about coverage for latent defects or design errors that may result in claims after the contract has been completed. One solution to this problem is to require the contractor to maintain the coverage for a specified period after the project has been completed or to purchase an extended reporting period, otherwise known as "tail coverage". The State’s standard requirements for professional liability require a two-year extended reporting period for all claims-made policies.

· Note: The contract manager will need to make sure that the contractor has provided evidence of the extended reporting period coverage at the end of the project and before all final payments to the contractor have been made.

G. WHEN TO REQUIRE COMMERCIAL CRIME OR FIDELITY BONDING

Commercial Crime Because General Liability policies exclude coverage for losses due to crime or employee dishonesty, insurance companies have developed specialized policies covering that risk. Contracts should include this when contractor is handling money, securities, other valuable property or has access to computer networks or computer data

Coverage provided by Commercial Crime policies can include:

· Employee dishonesty – covers embezzlement or theft of property or funds.

· Forgery & Alteration – covers when employee forges or alters documents

· Monies & Securities – cover theft of money and securities by employee or outside party.

· Computer Crime – covers employee or outside parties that steals money data via electronic means.

To provide coverage to the State, the Crime policies must be endorsed to cover Third Party Fidelity. Third party fidelity covers the contractor’s employees when engaged in work for a client. Additionally to ensure payment to the state, the policy should as include the State of Nevada as a Loss Payee.

Fidelity Bonds Fidelity bonds are similar to fidelity insurance in terms of the type of protection provided. An individual bond covers a specific employee. Scheduled bonds cover specific positions or named employees, such as all employees of a retail store or all cashiers at the store.

Unlike fidelity insurance, which involves two parties, the insured and the insurer, fidelity bonds involve three parties. The principal is the person who might cause the loss; the obligee is the person who would collect if the principal caused a loss; and the surety is the entity that pays the loss. Fidelity bonds are also used in situations involving risk that an employee could steal from a third party. For example, a stock brokerage would bond employees to cover potential thefts from customers.

H. POLICIES FOR SMALL BUSINESS AND SOLE PROPRIETORS

How can a vendor who is a sole proprietor or a small business obtain coverage to fulfill our Insurance requirements?

One package policy frequently purchased by small to mid-size businesses is the Business Owner's Policy or BOP. The BOP is a package policy designed to meet the insurance needs of small offices, stores, apartment houses, and certain types of small services and processing businesses. (The business owner’s package policy does not provide coverage for worker’s compensation – for information pertaining to sole proprietors; see General Information, Section E.)

A BOP policy includes coverage for many types of insurance policies usually purchased separately. The BOP can include property insurance for buildings and their contents. The package policy may also cover loss of business income and extra expense resulting from a fire or similar insured peril. The liability section of the BOP includes coverage for bodily injury or property damage that a business may be liable for.

The key to whether a business owner is eligible for the BOP is the size of the premises, the limits of liability required, the type of commercial operation it is, and the extent of its off-premises servicing and processing activities. Certain categories of small businesses, such as restaurants, wholesalers, florists, garages, etc., would not be eligible for a BOP, regardless of size, because they have specialized insurance needs. Many insurance companies offer specifically designed policies that usually include specialty coverage that is advantageous to those businesses.

More information regarding these policies can be obtained from their agent/insurance broker or from their professional trade association.

I. ALTERNATIVE RISK FINANCING

One trend within Risk Management is the growth of alternative risk financing, which involves numerous financial strategies, including the use of captive insurance companies and self-insured programs. These strategies developed in response to capacity reductions and price increases within the traditional insurance markets.

Captive insurance company is a subsidiary formed to insure the risks of its parent and affiliates, and when owned by a single parent is typically referred to as a pure captive. Ownership of captives can include multiple parents or, when owned by parents within the same industry are referred to as association captives. Captives like traditional insurance companies are licensed and subject to regulations established within the territory the company is formed and domiciled.

Self-Insurance is another risk financing technique which companies retain the loss and use their own financial resources to pay for losses rather than transfer risk to an entity outside the organization. Most commercial insurance policies have an aspect of retention built within them, for example, an insurance deductible could be consider a form of self-insurance. However; in the case the Self Insurance plan, it describes formal arrangement which the organization has set aside internal funds and resources to estimate and pay for losses. Full or exclusive self-insurance is rare and is usually combined with excess policies which are used to cap total amounts paid or to pay for catastrophic losses

When working with a company that utilizes Self Insurance it is important to realize that the ability for the company to pay for losses in dependent upon the financial strength of the organization, asset levels and its access to outside financial resources. Annual reports and/or financial statements can provide value information regarding a company’s financial standing. Additionally, a properly managed Self Insurance program should include a formal claims process and should subject their internal insurance fund to periodic audits or actuarial review.

J. FINANCIAL GUARANTEES - BONDS AND LETTERS OF CREDIT

Financial guarantees are a means to financially protect the state and assure that a specific duty will be discharged, a certain performance maintained or a specific obligation fulfilled. The Nevada Revised Statutes and the Nevada Administrative Codes have numerous provisions which require outside parties to provide a financial guarantee. Each agency responsible for administering or overseeing those provisions should become familiar with the type of financial guarantee required. Financial guarantees can include – cash, certificates of deposit, securities, surety bonds or letters of credit. Surety bonds and letter of credits are the most common and are further described.

Bonds A surety bond is a three-party agreement where the surety company assures the obligee (i.e. State) that the principal (contractor) will perform duties as outlined within a contact. The three primary types of contracts bonds are the bid, performance and payment bonds.

The bid bond provides financial assurance that the bid has been submitted in good faith and that the contractor intends to enter the contract at the price provide in the bid and will be able to obtain the required performance and payment bonds.

The performance bond protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

The payment bond assures that the contractor will pay certain workers, subcontractors and material suppliers.

Many similarities exist between insurance policies and bonds (many insurance companies often have separate surety divisions), but there some important distinctions as well. Insurance policies are contracts between two parties – the insured and the insurance company. Bonds are contracts between three parties – the obligee, the principal and the surety company. The premiums for traditional insurance policies are actuarially determined based on expected losses. Sureties qualify contractors based on the contractor’s financial strength and performance history.

Surety Companies also issue a type of bond called commercial bonds. Commercial bonds are defined by the specific purpose they intend to service such as license/permit bonds; court bonds or fiduciary bonds. These bonds are typically designed to meet statutory requirements and as a condition to engage in a particular activity or the granting of a permit or license.

Letter of Credit Letter of credit (LOC) is a financial instrument issued through a bank to guarantee performance for an underlying contact. Unlike bonds which have default language, the beneficiary can draw down on the LOC upon demand, which converts the LOC to a cash payment. Unlike bonds, letters of credit can be collateralized and as such are reported as obligation within the company financial statements. Letter of Credit is unusually irrevocable unless both parties agree to terminate. Bank assesses an annual of fee to maintain the Letter of Credit.

K. CONTACT RISK MANAGEMENT

If you have any questions about the information contained in this manual or need assistance in determining the appropriate insurance and/or indemnification language, please contact the Risk Management Division at:

Risk Management Division 201 So. Roop Street, Suite 201 Carson City, NV 89701 Telephone: (775) 687-1756 Fax: (775) 687-3195

This manual does not address all contracts, but is intended to address the most common situations. Be sure to contact Risk Management and/or the Attorney General’s Office if you have any questions on the material contained herein or need guidance on insurance requirements for specific contracts.

Section A – CONSTRUCTION PROJECTS Architectural/ Engineering / Design Contracts

NOTE: For all Construction Projects including Capital Improvement Projects (CIPs) and Deferred Maintenance requests over $100,000, please contact State Public Works Board for more information. See State Administrative Manual, Section 1900 Public Works Board.

Construction projects begin with the design phase. Consultants that provide design or engineering services, i.e. architects, engineers and design firms are considered "professionals" by the insurance industry and as such are insured by a specific type of liability insurance called professional liability, also known as errors and omissions (E&O) liability. Therefore, in addition to the required general liability, automobile liability and workers' compensation insurance, the State also requires the consultant to provide evidence of professional liability.

Professional liability insurance protects against losses that occur when a "professional" fails to practice his or her art to the usual and customary standards of that profession. Therefore, there can be risks to the State associated with errors (or allegations of errors) in the professional’s work product or judgment. The types of losses that can occur under such circumstances are often excluded under general liability policies.

Because professional liability insurance is almost always written on a claims-made basis, there is a concern about coverage for latent defects or design errors that may result in claims after the contract has been completed. One solution to this problem is to require the consultant to maintain coverage for a specified period after the project has been completed or to purchase an extended reporting period, otherwise known as "tail coverage". The sample specifications that follow require a two-year extended reporting period for all claims-made policies.

· Note: The contract manager will need to make sure that the consultant has provided evidence of the extended reporting period coverage at the end of the project and before all final payments to the consultant have been made.

Sample Insurance Specifications Architectural / Engineering / Design Contracts

The following paragraphs should be inserted into the contract

INSURANCE REQUIREMENTS:

Consultant and sub-consultants shall procure and maintain until all of their obligations have been discharged, including any warranty periods under this Contract are satisfied, insurance against claims for injury to persons or damage to property which may arise from or in connection with the performance of the work hereunder by the Consultant, his agents, representatives, employees or sub-consultants.

The insurance requirements herein are minimum requirements for this Contract and in no way limit the indemnity covenants contained in this Contract.

The State in no way warrants that the minimum limits contained herein are sufficient to protect the Consultant from liabilities that might arise out of the performance of the work under this Contract by the Consultant, his agents, representatives, employees, or sub-consultants. Consultant is free to purchase such additional insurance as may be determined necessary.

A. MINIMUM SCOPE AND LIMITS OF INSURANCE - Consultant shall provide coverage with limits of liability not less than those stated below. An excess liability policy or umbrella liability policy may be used to meet the minimum liability requirements provided that the coverage is written on a “following form” basis.

1. Commercial General Liability – Occurrence Form Policy shall include bodily injury, property damage, broad form contractual liability and XCU coverage.

a. The policy shall be endorsed to include the following additional insured language: "The State of Nevada, Department (of Division) of _______shall be named as an additional insured with respect to liability arising out of the activities performed by, or on behalf of the Consultant, including automobiles owned, leased, hired or borrowed by the Consultant".

b. Consultant's sub-consultants shall be subject to the same minimum requirements identified in this section.

4. Professional Liability (Errors and Omissions Liability)

a. In the event that any professional liability insurance required by this Contract is written on a claims-made basis, Consultant warrants that any retroactive date under the policy shall precede the effective date of this Contract; and that either continuous coverage will be maintained or an extended discovery period will be exercised for a period of two (2) years beginning at the time work under this Contract is completed.

b. Policy shall contain a waiver of subrogation against the State of Nevada.

C. NOTICE OF CANCELLATION: Contractor shall for each insurance policy required by the insurance provisions of this Contract shall not be suspended, voided or canceled except after providing thirty (30) days prior written notice been given to the State, except when cancellation is for non-payment of premium, then ten (10) days prior notice may be given. Such notice shall be sent directly to (State of Nevada Representative's Name & Address). Should contractor fail to provide State timely notice, contractor will be considered in breach and subject to cure provisions set forth within this contract.

D. ACCEPTABILITY OF INSURERS: Insurance is to be placed with insurers duly licensed or authorized to do business in the state of Nevada and with an “A.M. Best” rating of not less than A-VII. The State in no way warrants that the above-required minimum insurer rating is sufficient to protect the Consultant from potential insurer insolvency.

E. VERIFICATION OF COVERAGE: Consultant shall furnish the State with certificates of insurance (ACORD form or equivalent approved by the State) as required by this Contract. The certificates for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf.

All certificates and any required endorsements are to be received and approved by the State before work commences. Each insurance policy required by this Contract must be in effect at or prior to commencement of work under this Contract and remain in effect for the duration of the project. Failure to maintain the insurance policies as required by this Contract or to provide evidence of renewal is a material breach of contract.

All certificates required by this Contract shall be sent directly to (State Department Representative's Name and Address). The State project/contract number and project description shall be noted on the certificate of insurance. The State reserves the right to require complete, certified copies of all insurance policies required by this Contract at any time.

F. SUBCONSULTANTS: All required sub-consultants' certificates and endorsements are to be received and approved by the State before work commences. All insurance coverages for sub-consultants shall be subject to the minimum requirements identified above, unless otherwise specified in this Contract.

G. APPROVAL: Any modification or variation from the insurance requirements in this Contract shall be made by the State Attorney General’s Office or the Risk Manager, whose decision shall be final. Such action will not require a formal Contract amendment, but may be made by administrative action.

SECTION A - CONSTRUCTION PROJECTS

Construction & Purchase/Installation of Equipment

NOTE: For all Construction Projects including Capital Improvement Projects (CIPs) and Deferred Maintenance requests over $100,000, please contact State Public Works Board for more information. See State Administrative Manual, Section 1900 Public Works Board.

With any construction or remodeling contracts, the contractor is responsible for ‘direct physical damage to the construction project’ as well as to construction materials in transit or storage that have not yet arrived at the construction site. Therefore, in addition to the required liability and workers' compensation insurance, the State also requires the contractor to provide evidence of property insurance, which will protect the project against damage while under construction. This is done either through specialized property insurance forms known as "builders' risk insurance" or an "installation floater".

Builders' Risk insurance is a form of temporary property insurance designed to cover buildings and construction materials while in the course of construction. Builders' risk insurance protects the construction project against loss or damage caused by a variety of perils, i.e. fire, wind, hail, and theft. Builders’ Risk policies can be issued on a per project basis or as a blanket policy which covers all the general contractor’s on-going projects.

In contracts where the State is purchasing highly valued equipment or machinery (i.e. compressors, air conditioning units, generators, etc.) the scope of services may include both the initial installation and on-going maintenance of the equipment.

Installation floaters are similar to builders' risk insurance policies in that they are designed to cover damage to materials and equipment for damage or loss but generally are not as comprehensive as coverage is usually limited to the equipment being installed. When Installation floaters are required, agency should include a specific schedule of equipment and their replacement costs.

Upon project completion, agencies should notify Risk Management and provide a list of that equipment for inclusion on state’s property policy for permanent property coverage.

· Note: It should also be noted that if the scope of services provided by the contractor generates, transports, treats, stores, removes or disposes of hazardous materials, petroleum products or chemicals, the contractor can be held liable for damaging the environment if an accident were to occur. Most general liability policies severely limit or exclude liability for pollution losses. In those cases, additional insurance, known as Contractor's Pollution Liability insurance, would be required. Please refer to Section H to determine the appropriate type and level of insurance that may be needed.

Named Insured Guidelines for Builders Risk Policies and Installation Floater The Builders Risk Insurance requirements require the contractor to include the State of Nevada as a named insured under the builders risk policy. However, depending on the type of contract, other entities with an insurable interest in the project may also need to be named as insureds under the policy as well.

Standard Construction Contracts

The following paragraphs should be inserted into the contract

INSURANCE REQUIREMENTS:

Contractor and subcontractors shall procure and maintain until all of their obligations have been discharged, including any warranty periods under this Contract are satisfied, insurance against claims for injury to persons or damage to property which may arise from or in connection with the performance of the work hereunder by the Contractor, his agents, representatives, employees or subcontractors.

The insurance requirements herein are minimum requirements for this Contract and in no way limit the indemnity covenants contained in this Contract.

The State in no way warrants that the minimum limits contained herein are sufficient to protect the Contractor from liabilities that might arise out of the performance of the work under this Contract by the Contractor, his agents, representatives, employees, or subcontractors. Contractor is free to purchase such additional insurance as may be determined necessary.

A. MINIMUM SCOPE AND LIMITS OF INSURANCE - Contractor shall provide coverage with limits of liability not less than those stated below. An excess liability policy or umbrella liability policy may be used to meet the minimum liability requirements provided that the coverage is written on a “following form” basis.

1. Commercial General Liability – Occurrence Form Policy shall include bodily injury, property damage, broad form contractual liability and XCU coverage.

Minimum Requirements:

a. The policy shall be endorsed to include the following additional insured language: “The State of Nevada shall be named as an additional insured with respect to liability arising out of the activities performed by, or on behalf of the Contractor, including completed operations”.

a. The policy shall be endorsed to include the following additional insured language: "The State of Nevada shall be named as an additional insured with respect to liability arising out of the activities performed by, or on behalf of the Contractor, including automobiles owned, leased, hired or borrowed by the Contractor".

a. Policy shall contain a waiver of subrogation against the State.

b. This requirement shall not apply when a contractor or subcontractor is exempt under N.R.S., AND when such contractor or subcontractor executes the appropriate sole proprietor waiver form.

f. Policy shall contain a waiver of subrogation against the State of Nevada.

g. Contractor is responsible for the payment of all policy deductibles.

C. NOTICE OF CANCELLATION: Contractor shall for each insurance policy required by the insurance provisions of this Contract shall not be suspended, voided or canceled except after providing thirty (30) days prior written notice been given to the State, except when cancellation is for non-payment of premium, then ten (10) days prior notice may be given. Such notice shall be sent directly to (State of Nevada Representative's Name & Address). Should contractor fail to provide State timely notice, contractor will be considered in breach and subject to cure provisions set forth within this contract.

D. ACCEPTABILITY OF INSURERS: Insurance is to be placed with insurers duly licensed or authorized to do business in the state of Nevada and with an “A.M. Best” rating of not less than A-VII. The State in no way warrants that the above-required minimum insurer rating is sufficient to protect the Contractor from potential insurer insolvency.

E. VERIFICATION OF COVERAGE: Contractor shall furnish the State with certificates of insurance (ACORD form or equivalent approved by the State) as required by this Contract. The certificates for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf.

All certificates and any required endorsements are to be received and approved by the State before work commences. Each insurance policy required by this Contract must be in effect at or prior to commencement of work under this Contract and remain in effect for the duration of the project. Failure to maintain the insurance policies as required by this Contract or to provide evidence of renewal is a material breach of contract.

All certificates required by this Contract shall be sent directly to (State’s Representative's Name and Address). The State project/contract number and project description shall be noted on the certificate of insurance. The State reserves the right to require complete, certified copies of all insurance policies required by this Contract at any time.

F. SUBCONTRACTORS: Contractors’ certificate(s) shall include all subcontractors as additional insureds under its policies or subcontractors shall maintain separate insurance as determined by the Contractor, however, subcontractor's limits of liability shall not be less than $1,000,000 per occurrence / $2,000,000 aggregate.

G. APPROVAL: Any modification or variation from the insurance requirements in this Contract shall be made by the State Risk Management Division or the Attorney General’s Office, whose decision shall be final. Such action will not require a formal Contract amendment, but may be made by administrative action.

Section C – PROFESSIONAL SERVICES AGREEMENTS General Professional Services

Professional liability insurance protects against losses that occur when a "professional" fails to practice his or her art to the usual and customary standards of that profession. Therefore, there can be risks to the State associated with errors (or allegations of errors) in the professional’s work product or judgment.

Professional liability may have a different meaning when it relates to insurance rather than a "type" of State contract. In order to determine if you should require professional liability insurance, ask yourself:

If the answer is yes to either of these questions, then professional liability insurance should be required.

The types of losses that can occur under such circumstances are often excluded under general liability policies. They can be covered through separate professional liability insurance policies, also known as “errors and omissions” (E&O) liability insurance.

Examples of services that would require professional liability coverage include but are not limited to:

Because professional liability insurance is almost always written on a claims-made basis, there is a concern about coverage for latent defects or design errors that may result in claims after the contract has been completed. One solution to this problem is to require the contractor to maintain coverage for a specified period after the project has been completed or to purchase an extended reporting period, otherwise known as "tail coverage". The sample specifications that follow require a two-year extended reporting period for all claims-made policies.

· Note: The contract manager will need to make sure that the contractor has provided evidence of the extended reporting period coverage at the end of the project and before all final payments to the contractor have been made.

Sample Insurance Specifications Standard Professional Service Contracts

The following paragraphs should be inserted into the contract:

INSURANCE REQUIREMENTS:

Contractor and subcontractors shall procure and maintain until all of their obligations have been discharged, including any warranty periods under this Contract are satisfied, insurance against claims for injury to persons or damage to property which may arise from or in connection with the performance of the work hereunder by the Contractor, his agents, representatives, employees or subcontractors.

The insurance requirements herein are minimum requirements for this Contract and in no way limit the indemnity covenants contained in this Contract. The State in no way warrants that the minimum limits contained herein are sufficient to protect the Contractor from liabilities that might arise out of the performance of the work under this contract by the Contractor, his agents, representatives, employees or subcontractors and Contractor is free to purchase additional insurance as may be determined necessary.

A. MINIMUM SCOPE AND LIMITS OF INSURANCE: Contractor shall provide coverage with limits of liability not less than those stated below. An excess liability policy or umbrella liability policy may be used to meet the minimum liability requirements provided that the coverage is written on a “following form” basis.

1. Commercial General Liability – Occurrence Form Policy shall include bodily injury, property damage and broad form contractual liability coverage.

a. The policy shall be endorsed to include the following additional insured language: "The State of Nevada shall be named as an additional insured with respect to liability arising out of the activities performed by, or on behalf of the Contractor, including automobiles owned, leased, hired or borrowed by the Contractor".

4. Professional Liability (Errors and Omissions Liability)

a. In the event that the professional liability insurance required by this Contract is written on a claims-made basis, Contractor warrants that any retroactive date under the policy shall precede the effective date of this Contract; and that either continuous coverage will be maintained or an extended discovery period will be exercised for a period of two (2) years beginning at the time work under this Contract is completed.

C. NOTICE OF CANCELLATION: Contractor shall for each insurance policy required by the insurance provisions of this Contract shall not be suspended, voided or canceled except after providing thirty (30) days prior written notice been given to the State, except when cancellation is for non-payment of premium, then ten (10) days prior notice may be given. Such notice shall be sent directly to (State of Nevada Representative's Name & Address). Should contractor fail to provide State timely notice, contractor will be considered in breach and subject to cure provisions set forth within this contract.

D. ACCEPTABILITY OF INSURERS: Insurance is to be placed with insurers duly licensed or authorized to do business in the state of Nevada and with an “A.M. Best” rating of not less than A-VII. The State in no way warrants that the above-required minimum insurer rating is sufficient to protect the Contractor from potential insurer insolvency.

E. VERIFICATION OF COVERAGE: Contractor shall furnish the State with certificates of insurance (ACORD form or equivalent approved by the State) as required by this Contract. The certificates for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf.

All certificates and any required endorsements are to be received and approved by the State before work commences. Each insurance policy required by this Contract must be in effect at or prior to commencement of work under this Contract and remain in effect for the duration of the project. Failure to maintain the insurance policies as required by this Contract or to provide evidence of renewal is a material breach of contract.

All certificates required by this Contract shall be sent directly to (State Agency Representative's Name and Address). The State project/contract number and project description shall be noted on the certificate of insurance. The State reserves the right to require complete, certified copies of all insurance policies required by this Contract at any time.

F. SUBCONTRACTORS: Contractors’ certificate(s) shall include all subcontractors as additional insureds under its policies or Contractor shall furnish to the State separate certificates and endorsements for each subcontractor. All coverages for subcontractors shall be subject to the minimum requirements identified above.

G. APPROVAL: Any modification or variation from the insurance requirements in this Contract shall be made by the Risk Management Division or the Attorney General’s Office, whose decision shall be final. Such action will not require a formal Contract amendment, but may be made by administrative action.

SECTION C – PROFESSIONAL SERVICE AGREEMENTS

Professional Contracts – No Driving involved

Professional liability insurance protects against losses that occur when a "professional" fails to practice his or her art to the usual and customary standards of that profession. Therefore, there can be risks to the State associated with errors (or allegations of errors) in the professional’s work product or judgment. For more information describing professionals and professional liability insurance, please refer back to Introduction Section F.

Certain contracted services will not involve the use of either a contractor vehicle(s) or a State vehicle in order to perform the scope of services. Automobile liability should only be required if the contract services involve the contractor's use of a vehicle as part of the services being provided. This does not include merely driving to and from the State on occasion, i.e. for meetings. (See Introduction Section D. Guide to Automobile Liability Exemption).

· Note: If the contractor is operating a State vehicle in the course of providing services, the requirements should…