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Failure to Procure Contractually Required Insurance Can Be Disastrous

In a prior post, we discussed a Georgia Supreme Court opinion interpreting Atlanta’s OCIP policy.  The case at issue was remanded to the Georgia Court of Appeals, which has recently issued its opinion on remand.

The case contains a detailed and well-reasoned analysis of the extent of liability assumed by contractors and subcontractors in insurance programs, when they are imposed by contractual provisions.  Particularly, it discusses the extent of liability to employees on the theory that employees are third-party beneficiaries of such insurance programs.


In connection with a construction project for the construction of an international terminal at the Atlanta airport, an employee of Sub-Subcontractor was killed in an automobile accident.  The project owner was the City of Atlanta, which contracted with Contractor for construction.  The City also implemented an OCIP program, and imposed insurance requirements on Contactor.

Contractor agreed to provide minimum level of insurance set forth in OCIP terms and to require its subcontractors to do the same.  Through a flow-down provision, Subcontractor agreed to provide the same minimum level of insurance and to require its sub-subcontractors (including Sub-Subcontractor) to provide the same.

 It was undisputed that Sub-Subcontractor, who hired the deceased employee, did not provide the minimum level of insurance.  Instead of the required $10,000,000 of insurance, it provided only $1,000,000.  The deceased employee’s estate obtained a judgment against Sub-Subcontractor for an amount in excess of the $1,000,000, and Sub-Subcontractor was unable to pay the balance.

The estate then brought suit against the City, Contractor, and Subcontractor for their failure to require Sub-Subcontractor to procure the minimum level of insurance.

The Court of Appeals’ First Ruling and Appeal to the Supreme Court

  • The City’s Non-Contractual Duty

In its prior ruling, the trial court and Court of Appeals held the City had no duty outside of contractual duties to ensure lower-tier participants provided the minimum level of insurance.  The Supreme Court did not address this holding, and the Court of Appeals continued to stand behind it.

  • The City’s Contractual Duty

The Court of Appeals also held the City owed a contractual duty to the estate to ensure Contractor’s subcontractors procured the minimum level of insurance.  But the Supreme Court reversed this ruling, finding instead that the City’s contractual duty was limited to ensuring the Contractor obtained the minimum level of insurance.

  • Contractor’s and Subcontractor’s Contractual Duty

In its prior ruling, the Court of Appeals agreed with the estate that Contractor and Subcontractor breached their contractual duty to the deceased employee’s estate to ensure Sub-Subcontractor provided the minimum level of insurance.

But the Supreme Court held that the insurance provisions were ambiguous as to whether the insurance provisions applied to coverage of Sub-Subcontractor’s employees, including the deceased employee.  In other words, the Court needed further analysis to determine whether the deceased employee was an intended third-party beneficiary of the insurance provisions regarding minimum insurance coverage.  Thus, it remanded the case back to the Court of Appeals for a ruling on this point, which is the opinion that is the subject of this blog post.

The Court of Appeals’ Ruling on Remand: Was The Deceased Employee an Intended Beneficiary?

The parties disputed, among other things, the scope of the phrase “all participants,” which were the intended beneficiaries of the OCIP’s minimum insurance provisions.  The Supreme Court agreed that this phrase and other provisions of the OCIP provisions were ambiguous and subject to multiple interpretations.

The OCIP terms stated it was intended to “provide one master insurance program that provides broad coverages with high limits that will benefit all participants involved in the project.”  (emphasis added)  It further provided, “The OCIP will be for the benefit of the Owner [the City] and Contractors and Subcontractors of all tiers . . . .”

On remand, the Court of Appeals again investigated the parties’ intent based on the terms of the OCIP provisions and considered extrinsic parol evidence.  Applying rules of contract interpretation, it concluded that “all participants” included all persons who participated in the project, whether employed by Contractor, Subcontractor, or Sub-Subcontractor.

As a result, Contractor and Subcontractor breached their contractual duty to the deceased employee by failing to require Sub-Subcontractor to procure the minimum level of insurance.  Their failure to do so prevented the estate from recovering the full amount (or a greater amount) of damages, because Sub-Subcontractor was unable to pay the judgment beyond its lower level of insurance.  Thus, Contractor and Subcontractor were liable to the estate for their breach.


The Court of Appeals’ ruling on remand will have a significant impact on Contractor’s and Subcontractor’s liability.  In essence, the Court of Appeals held that Contractor and Subcontractor failed to require Sub-Subcontractor to procure the minimum level of insurance (i.e., $10,000,000 for automotive liability).  Having failed to ensure Sub-Subcontractor’s compliance, the estate was damaged because it was unable to recover more than the $1,000,000 in automotive liability insurance from Sub-Subcontractor.

The case has even broader implications for owners, contractors, and subcontractors who are contractually bound to ensure their contract counterparts procure minimum levels of insurance.  Before agreeing to such provisions, parties should ensure they can adequately require their counterparties to procure the required insurance.

Another complicating factor is that many parties simply require a “certificate of insurance” to document that the minimum level of insurance has been procured.  But such certificates are not definitive evidence of insurance coverage.  Nothing short of an insurance policy will provide such definitive proof.  And policies can lapse or expire without notice to the parties depending on them.


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