Insights from Our Recent Contractual Risk Management Webinar
Protecting your business through proper contracts, insurance, and risk management as a business owner are critical parts of your operations. One effective way to mitigate risk is through contractual risk transfer (CRT) – leveraging contracts to shift liability to the appropriate party. In a recent webinar, OneGroup specialists, Kirsten Shepherd and John Schmitt, provided an overview of the key principles of contractual risk transfer.
The Importance of Contractual Risk Transfer
Contractual risk transfer is essential for businesses to avoid bearing the costs of others’ negligence. When you hire a vendor or contractor, their actions can potentially expose your business to liability, such as if a customer is injured on your property due to the contractor’s actions. A well-crafted contract can transfer that risk to the responsible party. Additionally, effective CRT can help prevent your insurance costs from rising due to claims beyond your control. It also establishes clear expectations among all parties regarding roles, responsibilities, and how to address any issues that may arise.
Key Element of an Effective Contract: The Indemnification Clause
This protection legally binds one party (the indemnitor) to compensate the other (the indemnitee) in the event of a loss. There are different forms of indemnification agreements, with varying levels of liability. Alongside indemnification, the contract should outline specific insurance requirements. Typical coverages include general liability, workers’ compensation, auto liability, and umbrella policies. Ensuring that your vendors or contractors have adequate insurance, with you named as an additional insured, provides an extra layer of financial protection.
Verifying Insurance Coverage
A certificate of insurance (COI) is used to confirm the insurance coverages and limits. However, the certificate itself is not a guarantee of coverage – it’s crucial to review it against the contract requirements. Securing an “additional insured” status on the vendor/contractor’s policy gives you the right to access their insurance for defense and indemnification.
Consulting Legal and Insurance Professionals
Please consult with an attorney to ensure the contract language aligns with your specific needs and state regulations. Working closely with your insurance broker is also recommended to properly structure the insurance requirements. Protecting your business from liability is essential. By understanding the fundamentals of CRT and collaborating with legal and insurance professionals, you can put the right safeguards in place to mitigate risks and give your company the best chance of success.
For more information or to discuss how CRT can impact your business, please reach out to OneGroup. Our specialists are ready to help you navigate the complexities of contracts and insurance, ensuring your business is well insulated from risk. Contact us today to learn more!
Kirsten Shepard
Senior Risk Management Consultant
[email protected]
315-418-4955
John Schmitt
Risk Management Specialist
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.