Contracts and Insurance Requirements

Prior to bidding on a project it is important to have an attorney review any required contracts. Contract terms are usually negotiable and it is important to ensure your interests are protected once you sign a binding agreement. As insurance professionals, we are often asked to comment on certain clauses in contracts that have to do with insurance requirements. Many times we see contracts that require commitments beyond the scope of our insureds’ insurance. It may be necessary to acquire additional coverage to fulfill contractual requirements. It is important to alert your broker while you are in the bidding process so you can build additional insurance costs into your proposal if necessary. In addition, some projects require completed operations tails that require you to carry coverage for several years after the project is completed. Understanding the insurance costs upfront by asking your broker to review proposed insurance requirements will help you understand whether the project is ultimately profitable.

Contracts can also open up exposures that you need to evaluate prior to signing an agreement. The best way to determine this is by reviewing the agreement with a business attorney. It is important to review the indemnification clause carefully. Many times companies use boiler plate language that does not reflect standards that can be met by the insurance industry. It is important to watch out for language that asks you to assume sole liability and liabilities of every kind. This type of language asks you to assume exposures that are not covered by standard General Liability policies. It is important to negotiate this type of language to better protect your interests.

Conversely, it is important to understand the requirements of your insurance policies with regard to how additional insureds are covered. For instance, insurers usually require you to have a contract signed with the entity or person that you would like the insurer to consider an additional insured on your policy. Verbal agreements are not sufficient in this instance. By working with your attorney and broker prior to committing to a binding contract, you can alleviate onerous requirements and save time and money by negotiating terms and setting prices that adequately reflect your costs of doing business.