Contracts: Be Careful What You Wish For
Wonderful to be able to brag about landing a contract with a mega multi-national. But don’t forget to look at the cost of complying with your insurance provisions.
In this newsletter I am going to outline a few of the recent provisions we have recently seen.
Some of the more common areas to consider:
- $5,000,000 limits for both General Liability and Professional Liability
- $5,000,000 limits for Crime coverage, including 3rd party crime (for your employees working on client premises).
- Additional Insured status for your client, which adds exposure to your program and could ultimately affect your insurability.
Now – some of the more difficult and costly areas in contract language:
- Waiver of subrogation is commonly requested for all of your insurance policies. Insurers can balk at some of these, most particularly Automobile and Errors & Omissions Professional Liability.
- Primary and Non-Contributory – insurers will generally accept this condition on a General Liability policy if you have agreed to it in a contract. Many insurers will not agree to this provision on your E&O and auto policies.
- Severability of Insureds – this is a particularly onerous contract term which basically requires you to carry double your existing limits ($10,000,000 if your basic is $5,000,000. One $5MM limit for you and another $5MM limit for your client.) Few insurers have the capacity or the interest to offer coverage. Those willing will have very high costs.
- Another broad and difficult term is the condition for “broad contractual” coverage including “all terms of this contract and work order.” Many excluded areas of coverage in your insurance policy are included in your contract, such as patent infringement indemnification, which runs into serious money. Pollution terms may be in your services contract, even though you have no exposure to such operations of your services. Pollution coverage and IP insurance are expensive!
November 2013 Newsletter