Construction Contracts
Insurance and Indemnification in Construction Contracts
Written and reviewed by Andrew R. Schneidman, Esq. · Last reviewed
Insurance and indemnification clauses are usually read as two separate boxes to check before signing a construction contract. They work as one system: the indemnification clause decides who is responsible when something goes wrong, and the insurance clause decides whether that responsibility is actually backed by coverage or just a promise on paper.
Schneidman Law reviews and drafts insurance and indemnification terms for owners, contractors, and subcontractors across Middle Tennessee, reading the two clauses together the way an underwriter would, not in isolation.
What insurance should a construction contract require?
A construction contract should specify commercial general liability, workers' compensation, and, where relevant, builder's risk and umbrella coverage, each with a stated minimum limit appropriate to the size and risk of the project.
General limits language, such as "adequate insurance," protects no one. Naming the coverage types and dollar limits explicitly is what makes the requirement enforceable, and it lets every party confirm before work starts that the coverage in place actually matches what the contract requires.
Andrew’s take
Insurance and indemnification language gets treated like boilerplate because it reads like boilerplate, dense and repetitive across every contract. In practice, this is the section that decides who actually pays when someone gets hurt or something gets damaged on site. It deserves the opposite of a skim.
What does additional insured status actually mean?
Additional insured status extends a party's own liability coverage to protect another party, typically the owner or general contractor, for claims arising out of the additional insured party's work on the project.
Being named as an additional insured is not automatic just because a contract requires it. The certificate of insurance should be checked to confirm the additional insured endorsement is actually attached, because a certificate without the endorsement is a common gap that only surfaces after a claim, when it is too late to fix.
How does indemnification work in a construction contract?
An indemnification clause requires one party to cover the losses, claims, or damages of another party arising from specified events, most often the indemnifying party's own work, negligence, or presence on the site.
Indemnification clauses range from narrow, covering only losses caused by the indemnifying party's own negligence, to broad, covering losses regardless of fault. Tennessee law limits how broadly a construction contract can shift responsibility for another party's own negligence, which makes this clause one worth reading against both the insurance section and applicable law before signing.
What is a waiver of subrogation, and why does it appear in construction contracts?
A waiver of subrogation prevents an insurance company from pursuing another party on the project to recover a claim it already paid, keeping disputes between insurers out of a working relationship between the owner, contractor, and subcontractors.
These waivers are common in builder's risk policies specifically because a construction site involves multiple parties working in close proximity. Without the waiver, one party's insurer could pursue another party on the job for a covered loss, turning a paid claim into a new dispute among the people still working together to finish the project.
What happens if a party lets required insurance lapse?
A lapse in required insurance typically breaches the contract and, depending on the clause, can suspend the lapsed party's right to remain on site until proof of reinstated coverage is provided.
The contract should require periodic proof of coverage, not just a certificate at the start of the job, because policies lapse, get canceled for nonpayment, or exclude renewal terms nobody checked. A coverage requirement with no ongoing verification mechanism is a promise, not a protection.
Frequently asked questions
Is a certificate of insurance enough to confirm coverage is in place?+
A certificate of insurance is a snapshot, not a guarantee. It can be issued before an endorsement is actually added to the policy, and it does not obligate the insurer the way the policy itself does, so the underlying endorsements deserve confirmation on any project of real size.
Can a contract require unlimited indemnification?+
Tennessee law places limits on how far a construction contract can shift liability for a party's own negligence onto another party, so an indemnification clause that reads as unlimited may not be fully enforceable as written, which is exactly why the clause deserves review rather than a signature on faith.
Who typically carries builder's risk insurance on a project?+
Builder's risk coverage is most often carried by the owner or the general contractor, depending on the contract, and it covers the structure itself during construction rather than liability to third parties, which general liability coverage handles separately.
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