Minimum Insurance Requirements for Contracts
I. ScopeII. Insurance Coverage
Commercial General Liability
Worker's Compensation
Business Automobile Liability
Umbrella/Excess Liability
III. Other Lines of Insurance Coverage
Property
Builder's Risk
Pollution Liability
Professional Liability/Errors and Omissions
Cyber Insurance
Crime/Fidelity
Liquor Liability/Social Host
Contract Bonds
IV. Certificates of Insurance and Policy Endorsements
V. Other Key Considerations
Governmental Tort Immunity
Foreign (Non-US Based) Contractors/Vendors
Self-Insured Contractors/Vendors
Loss Documentation and Investigation
The following insurance requirements have been designed to facilitate the execution of contracts by duly authorized officers of The Catholic University of America. They are to be applied to all contracts entered into by the University with entities that include but are not limited to: for profit businesses supplying goods or services, not for profit businesses and organizations, independent consultants, students, student organizations and other academic institutions, including research awards and sub-awards. All these entities will here-in be referred to as "contractor/vendor." Where the following topics apply only in certain situations, it is noted as such.
Insurance coverage serves as part of the financial backing for the liability assumed by a contracting party through the indemnification language in a contract. Instead of intentionally utilizing its own assets to support the liability, the contracting party is transferring the risk to the insurance company in return for payment of the insurance premium. Without insurance, most contractors/vendors would not be able to meet their indemnification obligations when a significant loss occurs. Risk Management requires that all contractor/vendor insurance policies be written on a primary basis and be non-contributory with any other insurance coverages and/or self-insurance carried by the University. Coverage should be provided by a carrier approved to do business in the District of Columbia and rated at least "A (V)" in A.M. Best's Key Rating Guide. The coverages and minimum limits that Risk Management requires are a reflection of the perceived risk potential that the activities of the contractor/vendor could impose on the University but in no way limits the liability of the contractor/vendor. If the contractor/vendor has no insurance coverage or inadequate limits to cover the cost of a contract related claim(s), the University will seek a court order to attach the contracting party's assets to satisfy indemnity against incurred damages. For most contractors/vendors, Risk Management will generally require the contract/agreement reflect a specific level of insurance limits that addresses four types of insurance coverages:
- Commercial General Liability
- Workers Compensation
- Business Automobile Liability and
- Umbrella or Excess Liability.
Entities/organizations that are totally self-insured are not required to carry insurance (see Governmental and Quasi-Governmental Tort Immunity) or carry a deductible/retention greater than $250K on any required coverage must attest that they possess the necessary amount of unencumbered financial assets to support their retained risk financing exposure(s).
Commercial General Liability is a broad-based insurance that covers the liability assumed in the performance of the general, non-professional activities of many businesses. In most cases, the Page general liability insurance will be the primary policy responding to negligent acts or conditions (e.g. a person injured from a tool dropped or mishandled by a contractor/vendor). Contractors, vendors and other outside businesses and organizations that want to do business with the University or otherwise conduct business on University property will be required to provide evidence of commercial general liability insurance and to name the University as an additional insured to the organizations' insurance policy. Any endorsements granting additional insured status must state the insurance afforded these additional insureds applies on a primary basis with respect to any other insurance or program of self-insurance available to the additional insureds, which will apply only on an excess and non-contributory basis. Additional insured status provided under an endorsement granting such status on a blanket "...as required by written contract" basis (in lieu of specifically identifying the additional insureds) is not acceptable unless the contract or agreement includes a specific requirement for additional insured status for the persons and entities specified above. Also, the contract must be executed prior to the first date on which services are performed and/or product is delivered (Please see Certificates of Insurance section below for required wording.) Examples of outside businesses and organizations that must meet these requirements include but are not limited to: consultants; construction contractors and other building services contractors (electricians, plumbers, HVAC); vendors providing campus event activities and services; and non-affiliated organizations using University facilities for meetings, seminars, athletic events, etc. The minimum amount of insurance limits required by Risk Management is based on the level of risk involved with the type of service provided/activity taking place and the scope and nature of the project to be completed (e.g. could negligent work by the contractor/vendor result in significant damage to University property, business operations or injury to University students, employees or visitors).
Workers' Compensation covers an employer's statutory financial obligation to pay the costs associated with an employee's medical treatment and lost wages due to a work-related injury or illness. With very limited exceptions, all businesses are required by law to either purchase workers' compensation coverage or become an authorized self-insurer by statute. (Exceptions include businesses whose legal status is a Partnership, Limited Liability Partnership, Professional Limited Liability Partnership, Limited Liability Company, Professional Limited Liability Company or Sole Proprietorship and the business has no employees.) Employers Liability covers an employer's liability for bodily injury to employees occurring within the scope of their employment when that liability is not covered by workers' compensation. This coverage generally applies when an employee alleges that the employer's negligence or failure to provide a safe workplace was the cause of the employee's injury or illness. Employer's liability is normally provided in conjunction with the workers' compensation coverage in a single unified policy. In situations where the contractor/vendor will be engaged in operations/services on University property, the contractor/vendor will be required to carry Workers' Compensation and Employer's Liability insurance. It is the responsibility of the contractor/vendor to provide proof/documentation that they are exempt from statutory requirements of having Workers' Compensation insurance, if they qualify for such.
Business Automobile Liability*
Business Automobile Liability insurance covers the liabilities assumed by a business when the type of motor vehicles required to be licensed for operation on public roads are used in the course of their business activities. In situations where the contracting party will be utilizing motor vehicles (owned, hires, or borrowed) to perform operations/provide services on University property, the contracting party will be required to carry Business Automobile Liability insurance. If the contractor/vendor will be transporting hazardous substances or passengers for hire, they must meet all applicable District and Federal licensing requirements. Depending on the type and amount of hazardous materials transported, the contractor/vendor may be subject to the Motor Carrier Act of 1980 and be required to provide proof of required financial responsibility. Proof of financial responsibility may be in the form of a Motor Carrier Act endorsement (MCS-90) to their liability insurance policy, a Motor carrier surety bond or written authorization from the Federal Motor Carrier Safety Administration to self-insure the requirement. In those situations, the limits of liability required will be in accordance with 49 CFR 387.7.
*Minimum levels of financial responsibility are determined by the highest seating capacity of a vehicle within a fleet operated by an interstate for-hire motor carrier of passengers.
Umbrella/Excess Liability insurance provides additional coverage limits over a primary (General Liability) insurance policy. Excess Liability only applies to a single policy. An Umbrella Liability policy can apply to multiple policies. A standard umbrella liability policy generally provides additional limits to a business's Commercial General Liability, Business Automobile Liability and Employer's Liability policies. A contractor/vendor's Primary and Excess/Umbrella Liability limits can be added together to meet Risk Management's required limit(s) for an individual line of coverage. For example, if the contractor/vendor is required to carry $2m in Commercial General Liability and the insurance certificate shows $1m Commercial General Liability and $1m or more in Umbrella Liability limits, this would comply with the required $2m limit. These coverage limits may be increased if the scope and/or risk associated with the contractor/vendor activities are greater than usual University activities/projects.
III. Other Lines of Insurance Coverage
Certain types of contracts and activities will result in additional required insurance coverages for the contractors/vendors performing them. The additional coverages include but are not limited to:
Property insurance reimburses the policyholder for damage to or theft of their real and personal property (buildings, contents and other items of property not specifically excluded). It can also protect against extra expenses and lost business income resulting from the damage to or theft of insured property. Requirements to carry property insurance will generally be limited to lease agreements with commercial tenants. The tenant will be required to carry "Broad Form" property insurance (including breakage of glass from any source whatsoever) to all property of the tenant, in an amount equal to the replacement cost value of the property. Property insurance is also required of the contractor/vendor if they will have care, custody or control of University-owned personal property (artwork, rare books, scientific equipment, etc.) The University's property insurance does not respond to losses for non-owned property (borrowed, leased, etc.) unless the University has assumed liability by way of a written contract or agreement.
Builder's Risk (Required for Projects in the Amount of or over $5MM)
The Master Builders Risk Insurance program provides reimbursement of unanticipated hard and soft construction costs incurred because of physical loss or damage to an insured capital project as a result of fire, windstorm, lightning, flood, theft, earthquake, acts of terrorism, and other fortuitous causes. The insurance also provides reimbursement of reasonable and necessary costs incurred, including expenses resulting from a delay in the University's use of the improvements being constructed (aka delay in start-up costs) because of insured property loss or damage. Therefore the office of Capital Project Management should take the necessary measures to ensure appropriate builders risk insurance is put into place for projects BEFORE the start of construction to ensure compliance with the insurance requirements in the standard agreement and to avoid financial responsibility for uninsured losses that otherwise might have been covered by builders risk insurance. The policy limit should equal the total completed value of the project.
If the contracting party engages in a business that works with, uses or produces a material, product or waste considered to be a "hazardous material or waste" under local, state or federal law/regulation (which includes but is not limited to flammable explosives, radioactive materials, known carcinogenic materials, volatile chemicals and biological contaminants), they will be required to carry Pollution Liability insurance coverage. The policy must cover the Contractor's completed operations and must include sudden and gradual coverage for third-party liability including defense costs and completed operations. The coverage must be maintained during the term of the contract/lease and at least three (3) years following its completion/termination.
Professional Liability/Errors and Omissions Insurance
Certain types of contractors/vendors perform activities that are highly specialized professional services and are not fully covered under a Commercial General Liability policy. In addition to the four basic coverages described in Section II, these contractors/vendors will be required to carry Professional/Errors and Omissions Liability insurance. Contractors/vendors that are required to carry Professional/Errors and Omissions Liability insuranceinclude but are not limited to: Law Firms, Architects, Medical Professionals, Environmental Consultants, Engineers, Security Companies, Accountants, Investment Managers and Insurance Brokers. The liability exposures created by an improper act, error or omission in the performance of professional services can be very significant. Without insurance, nearly all professional contractors/vendors would not be able to meet their indemnification obligations when a significant loss occurs. Were this to occur, the University would have no readily available source of funding to compensate for the financial loss created by the contractor/vendor's actions and would have to pay for the unbudgeted loss out of operating funds intended to support the educational and research missions of the University. The coverage must be maintained during the term of the contract/lease and at least three (3) years following its completion/termination.
Cyber insurance, also known as cyber liability insurance, can help businesses and organizations recover from financial losses caused by cyberattacks or data breaches. It can also help cover the costs of remediation, such as investigations, legal services, and crisis communication.
Fidelity insurance, also known as fidelity bonds, protects companies from financial losses caused by fraudulent or illegal acts committed by employees, partners or third parties. This insurance can cover the costs of investigations, legal action and contractual penalties. Although we understand that vendor fraud is very uncommon, there may be an exposure which may include main forms of external fraud including vendor fraud and customer/competitor fraud. Vendor fraud occurs in three ways:
- Short shipments: Orders being shipped as incomplete or missing yet charging for a full shipment
- Balance billing: Involves the vendor merely billing the "balance on the account," allowing the vendor to overcharge or fail to credit a returned shipment
- Substandard goods: When the vendor charges for a product/service but delivers a product of lesser standard.
Customer fraud can also occur multiple ways. Customers may defraud an organization through accounts receivable and return of goods. An example of returns would be when an individual orders an item online and later returns a different or lower quality item for full credit.
Competitor fraud is highlighted by two common schemes: theft of proprietary information and sabotage, Theft of information is a nearly endless crime having many forms and falls under the corporate espionage umbrella. Competitors can use many techniques difficult to detect. Investigating these types of cases tends to require assistance from counter-intelligence specialists.
Liquor Liability Insurance - Social Host Program
Legal liability risk is associated with the furnishing of alcoholic beverages by staff in a social or non-commercial setting (so-called Social Host liability). The policy responds to claims for damages due to negligent acts actually or allegedly committed by eligible representatives arising out of the consumption of alcohol for which that person is deemed legally liable.
Contract Bonds provide a financial guarantee that a contractor/vendor will provide the service or product promised in a contract. The most common type is a Performance Bond. A Performance Bond provides a financial guarantee that the contractor/vendor will provide the service/product per the terms agreed to in the contract. The University will generally require Performance Bonds for construction projects valued at or greater than $5MM.
IV. Certificates of Insurance and Policy Endorsements
A Certificate of Insurance is a simple, standardized way of documenting proof of insurance coverages. Although a certificate of insurance is not legally binding and does not impose any obligation onto the insurance company(s) listed, it does serve to identify key information about the contractor's/vendor's insurance. The University will accept properly completed ACORD 25 (liability) and ACORD 28 (commercial property) Certificate of Insurance forms as sufficient proof of insurance. In order to assure that the University has been properly afforded additional insured status on a contractor's/vendor's policy, it is required that the contractor/vendor supply a copy of their Additional Insured-Owners, Lessees or Contractors' Endorsement (ISO Form CG 20 37 07 04 or equivalent) naming "The Trustees of The Catholic University of America in the District of Columbia, its trustees, officers, agents, and employees are Additional Insureds as their interests may appear relating to (Insert the name of the service/project or product)". Prior to finalizing the contract, the contractor/vendor will be required to deliver the COI and endorsement evidencing the required coverages and limits to the Purchasing Department/Contract Originator within the University. The COI should provide for:
a. Coverages represented on the certificate must show policy numbers, policy dates and limits
b. With the exception of Workers' Compensation and Professional Liability coverage, the COI must state that "The Trustees of the Catholic University of America in the District of Columbia, its' trustees, officers, agents, and employees are Additional Insureds as their interests may appear relating to (Insert the name of the service/project or product)". This language must appear in the COI section entitles Description or Operations/Locations/Vehicles/Special Items.
c. A minimum of thirty (30) days written notice of cancellation, non-renewal or material restriction of coverage terms or limits from the insurance company by signed receipt delivery.
The University enters into many contracts with governmental (States, Cities, Towns, etc.) and quasi-governmental entities (Housing Authorities, Transit Authorities, other Universities, etc.). Governmental entities are generally immune from liability for lawsuits in accordance with the principle of sovereign immunity. However, many states have enacted statutes that provide for waiver of such immunity for certain types of tort actions by governmental employees, Because of this, a governmental or quasi-governmental entity may assert immunity from liability matters related to the contract and they may or may not maintain any of the required insurance coverages. Additionally, applicable state statutes may prohibit the University from enforcing the indemnification clause in the contract. If this situation arises, the appropriate University leadership party (The Office of the Vice President, Dean, etc.) should be consulted to determine the most appropriate course of action for the University.
a. Standard practice is to include the insurance requirements established by Risk Management in the agreement.
b. Second option is to request that the entity waive in writing their assertion of full or partial sovereign immunity.
c. If the entity asserts full sovereign immunity and refuses to waive such, the VP in conjunction with the applicable contracting area will perform the appropriate level of analysis to assess the risks associated with the work that the contractor/vendor will be performing: the likelihood of an act, error or omission committed by the entity; the potential impact of such an act, error or omission; and the potential direct or indirect financial loss to the University. The analysis will consider the legal, regulatory/compliance, operational, financial, and reputational risks associated with work required by the applicable contract.
d. If the entity asserts a limitation of liability through a state or federal tort claims act, the VP needs to evaluate whether the applicable tort claims act of the given state "waives" immunity for the liability that would be created by the improper performance of the applicable activities by the contractor/vendor and whether there is any liability "caps" included in the statute. If the entity can be held liable but there are liability "caps" that are less than the prescribed insurance requirements, the VP in conjunction with the applicable contracting area, shall determine whether to accept financial risk that the contractor/vendor will commit an act, error or omission that will compromise or eliminate the ability of the University to complete the applicable project/service and leave the University with limited financial recourse.
Foreign (Non-US Based) Contractors/Vendors
The University enters into many contracts with non-US based organizations where typical insurance policy structure and limits may be expressed differently and may afford substantially less coverage than what is commonly carried by similar US based organizations.
a. Standard practice is to include the insurance requirements established by Risk Management in the agreement.
b. If insurance information is provided in terms other than US Dollars, Research Administration must perform a currency conversion calculation that will calue the limits in US Dollars.
c. If the foreign organization does not maintain all of the required insurance coverage or the required limits of coverage, the VP in conjunction with the applicable contracting area will perform the appropriate level of analysis to assess the risks associated with the work that the contractor/vendor will be performing, the likelihood of an act, error or omission committed by the entity, the potential impact of such as act, error or omission on the applicable project/service, and the potential direct or indirect financial loss to the University. The analysis sill consider the legal, regulatory/compliance, operational, financial and reputational risks associated with the work required by the applicable contract.
Self-Insured Contractors/Vendors
Contractors/Vendors that have implemented a formal, structured self-insurance program (e.g. captive insurance company, risk retention group) or carry a deductible/retention greater than $250K per claim on any required coverage must attest in writing that they have excess insurance or re-insurance and that they possess the necessary amount of unencumbered financial assets to support their retained risk financing exposure(s). The University office of Procurement and Payment Services can provide guidance on the format and content of such attestation.
Loss Documentation and Investigation
In the event of an insurance claim or lawsuit arising from the improper performance or failure to perform the requirements of a contract, the University department that initiated the contract must cooperate with Risk Management and the Office of the Vice President in securing all needed information and documentation concerning the contract. Also, to the extent possible, the University department that initiated the contract will help to secure the cooperation of the contractor/vendor in adjudicating an insurance claim.