Customers often ask me to review contracts before they sign them. This is important because there is not much point in reviewing a contract after it has been signed.
One of the first things we make clear is that we are not lawyers and they should call their attorney, but we are happy to review the insurance portions. Aside from limits of liability and mandatory coverages, most of the time there are three requirements which can significantly change a customer’s insurance coverage.
- Hold harmless: Commonly added to insurance clauses in contracts, this essentially promises to hold harmless from any and all claims the company you are doing business with. This provides a broad exemption of liability and often can be reworded more favorably to include “in conjunction with your work under this contract.” You should also demand the contract is reciprocal and that the other party holds you harmless as well.
- Waiver of subrogation: Another common condition added to contracts, this essentially prevents your insurance company from collecting from the other party if they were negligent in the claim. If your insurance company pays for damage done to your vessel by the other party in the contract, a waiver of subrogation prevents the insurance company from suing the other party in the contract to recoup their payment. Again, if this is required, make sure the other party waives subrogation as well.
- Additional insured: This clause allows the other party to share your liability limits if they are named in a claim related to the work being done in the contract. This means the liability limits are now cut in half, reducing your overall coverage limits, and that the other party in the contract is now getting liability coverage for free. This is now being requested more often lately and many times an underwriter will want to know the relationship between the two parties to explain the need to be added as additional insured.
Contracts are part of doing business and can be as simple or as complicated as the parties involved require. When it comes to the insurance language in your contracts, be sure to contact your agent.