Failure to Procure Insurance is a Breach of Contract

The failure to perform all of your contractual obligations is a breach of contract. Absent some excuse that discharges performance, the breaching party is liable for all damages resulting from the failure to perform its contractual obligations.

When most contracting parties think of a breach of contract, they think in terms of performance with respect to the end product (e.g., a perfect slab, a complete set of construction documents, etc.). People will often say that I performed all my scope of work or I provided all conforming materials required of me under my contract. However, breach of contract can arise from the failure to perform other contractual obligations. For instance, virtually all design and construction contracts impose certain insurance requirements on the parties, and the failure to procure the required insurance is a breach of contract. See e.g., Doster Const. Co., Inc. v. Marathon Elec. Contractors, Inc., 32 So. 3d 1277, 1284 (Ala. 2009) (quoting Goodyear Tire & Rubber Co. v. J.M. Tull Metals Co., 629 So.2d 633, 639 (Ala.1993) (“Agreements to procure insurance are generally enforceable under Alabama law, and a party who breaches such an agreement is liable for damages resulting from the failure to obtain the promised insurance....”).

Accordingly, be sure you procure all insurance coverage required of you under the contract because even the most innocuous exclusion in a policy can result in a breach. But most importantly, contact your insurance agent before signing the contract to verify that the coverage required is actually available, or at least available at a cost you are willing to absorb. Otherwise, you may be held liable for damages resulting from the failure to procure insurance if the other contracting party suffers damages due to your failure to procure insurance.

Alabama attorney and professional engineer Jacob W. Hill practices construction law, representing general contractors, subcontractors, material suppliers, developers, architects, engineers, and other parties to construction and development projects. Contact Jacob Hill for more information or a consultation regarding your project.