Read Before You Sign - Insurance and Contracts

Posted by The ALS Group on May 12, 2016 3:22:19 PM

A critical step of any contractual agreement between property owners and managers and their vendors (including contractors) is a careful review of the provisions affecting insurance and legal indemnification.  The difference between a thoughtfully negotiated contract and one that is “off the shelf” or, even worse, none at all may be the difference between accepting liability where never intended.

There are several parts of a contract that need careful examination and editing:

  1. The insurance provisions – It is here that you lay out the insurance types, limits and enhancements that the vendor must carry and evidence by way of Certificates of Insurance
  2. Indemnification provisions – It is here where the contract will specify who is being indemnified if a claim should develop because of the vendor’s work or product. The indemnification generally provided under a standard “boiler plate” agreement is usually very restrictive and almost always to the vendor’s favor.  The contract should be revised so that you are held harmless and indemnified, to the fullest extent permitted by law,  for any injury or damage caused by the vendor, their subcontractors or employees for their work or for anything that results from their work after the work or installation is completed.
  3. Additional insured status – While it is essential that you are named as an additional insured on the vendor’s insurance, care has to be taken for two additional factors:
    • Primary and Non Contributory wording – While it is important to have additional insured status it should also be a requirement that the vendor provides this extension on a “primary and non-contributory” basis. This will ensure that the vendor’s insurance will be the first (and only) one from which third party claim will be paid.
    • On Going vs. Completed Operations – It has become common for additional insured endorsements to be provided for only “ongoing operations”. In this case, once the work is completed the additional insured status “runs out”.  This is a serious problem when a claim arises, sometimes years later.  So it is essential the additional insured status be included for “completed operations” as well as “ongoing operations”
  4. Waiver of subrogation – Even if a vendor’s insurance may pay for a claim, their insurance carrier still has the ability to attempt to subrogate, or try to collect from the owner, alleging that the claim was contributed to by the owner’s negligence. It is essential that the vendor’s contract include a provision in which they, the vendor, agree to waive all rights of subrogation against you to preclude their insurance carrier from starting action to recover the claim payment, and/or defense costs, from you.

Clearly, the above form very basic points for review but, with the guidance of an experienced insurance professional and legal counsel, they can form the framework of an effective contractual relationship.

Please contact us if you need help with contract review process or to find out more about our services.

Click here to request more information about The ALS Group and our services or for help with any of your risk related issues.

Topics: Insurance

The ALS Group

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