Well-crafted contracts can protect both parties from potential lawsuits. However, if you don’t understand the insurance requirement provisions in a contract, you could expose yourself to additional liability issues. While most risk management tools focus on reducing the likelihood of workplace accidents, there are several things you can do to reduce the likelihood of financial loss as it relates to contract negotiations.
Additional Insured Requirement
Construction contracts typically include an additional insured requirement, but this requirement is a useful risk management tool for just about any type of contract. If you are issuing the contract, being named as an additional insured means that you will be covered for certain losses under an insurance policy purchased by someone else that names that person or entity as the primary insured. If you are accepting a contract, understanding the terms and provisions of this requirement is essential. Your insurance agent can make certain you have the appropriate coverage that is required.
Indemnity Provisions
Having an indemnity clause in contracts can protect you against liabilities arising from the actions of another. The indemnification provisions should be written in a precise manner that protects the party issuing the contract from any claim made by a third party that arises from the accepting party’s non-performance or improper performance of the accepting party’s duties under the contract.
Review Contracts with Professionals
A breach of contract suit could be a financial burden for your organization. Therefore, consult with legal professionals about any contracts that you issue or accept. Each contract is unique and has to be reviewed on an individual basis. Seek the counsel of an attorney to review contracts for legal obligations. Seek the counsel of your insurance agent to make certain you have the proper insurance coverage and endorsements required by the contract.
Regardless of what business you are in, contracts are a valuable and essential part of your day-to-day operations. By using these and other risk management tools, you can better protect your organization from additional liabilities that could result from contract negotiations.