Risk Transfer - Contract Review
We all engage in either providing services to others or engaging others to provide services to us. These events routinely involve a transfer of risk between the parties and you need to have a clear understanding of what is involved. We will try to summarize the key points to consider.
Risk risk transfer must be within a written agreement. This can be a contract, a sales agreement, lease, rental agreement, or purchase order. Most insurance policies will not recognize a transfer of risk without a written agreement. This is the first step in the process. The written agreement should specify that any terms and conditions between the two parties should also apply to all primary subcontractors and their secondary subcontractors involved in the transaction.
Hold Harmless and Indemnification
The written agreement should include a hold harmless and indemnification agreement between the parties. There are three types of hold harmless statements.
The limited hold harmless protects the other party form the sole negligence of the other party.
An intermediate agreement allows for shared negligence between the parties.
A broad form hold harmless agreement has one party assuming the liability for the other party’s negligence. This broad form agreement may not be enforceable in some jurisdictions.
Once you agree upon the level of hold harmless language, there is an agreement that one party will indemnify or protect the other party. This statement will include the types of losses and damages that are included in the indemnification agreement.
In most cases the financial protection in the indemnification clause will be provided via an insurance policy. Here are some of items to review in the insurance portion of the agreement.
If the other party’s insurance program is required to protect you, additional insured status should be required. You should be named and included as additional insured on their General Liability policy. If you are offering to protect someone, you would name that party as an additional insured on your policy. If you are being named as an additional insured, you should request insurance limits that mirror your own limits and request a "Certificate of Insurance" evidencing the limits and listing you as an additional insured. .
If the service includes the provider driving to your property, then ask for proof of automobile liability insurance. This will protect you from an automobile accident on your premises. Limits requested should mirror your own limits.
Workers Compensation insurance is needed for the service provider’s employees. Statutory limits for Workers Compensation are required. The Employers liability limit should mirror your limit.
Builders Risk / Installation Floater
If there is a need to provide property insurance for goods being installed or the building materials for a project, a builder’s risk or installation floater policy should be in force. This policy can be obtained by either party, but the limits should be adequate to protect the interests of both parties involved.
The Driehaus Difference
Risk transfer is not the first thought when starting a project or engaging a service provider. We assist our clients in meeting the insurance requirements for projects they are working on and also to secure the right coverages from their service providers and contractors. Your insurance program can be structured to streamline the administrative costs and expenses related to risk transfer. Ask us for our assistance and advice. You can reach us on the internet at www.driehausins.com or by phone 513-977-6860