Beware of Contracts Containing Insurance Language from the Stone Age
Being vigilant in reviewing contract language is key in protecting your business assets. Is every contract presented to you reviewed prior to signing? How do you verify your insurance policies will satisfy the insurance requirements contained in the contract?
Insurance terminology from decades ago often appears in contracts and is a red flag that needs to be addressed. Contracts specifying outdated insurance requirements usually is a sign the drafter of the requirements possesses limited insurance knowledge. However, in rare cases, impossible to purchase coverages may be intended to place the signer into breach of contract allowing the drafter to withhold payment for services.
As soon as a contract with outdated insurance language is executed, the signer places themselves in a risky situation. Failure to maintain insurance policies as required by a contract can be considered breach of contract.
Impossible to meet insurance specifications can be addressed in a couple of ways to help avoid a potential breach of contract situation:
Redraft the contract.
Make certain the contract drafter is made aware in writing of any contract deviations that cannot be fulfilled due to outdated insurance language.
Certificate of Insurance (COI)
A certificate of insurance is a document providing evidence that certain types of insurance coverage and limits have been purchased by the contract signer. Crucial facts to keep in mind regarding a COI:
A COI is merely a "snapshot" of the coverage that was in force at the time the certificate was requested, nothing more
A certificate does not offer any protection other than acknowledging an entity has insurance
Insurance policies, not certificates of insurance, are legally binding contracts
A certificate is only as good as the provisions of the underlying policies
When a contract writer requires additional insured status on a primary and non-contributory basis and/or waiver of subrogation, a COI cannot document these terms unless:
the written contract specifies the terms and is signed and executed prior to a loss
if not already included on the signers insurance policies, the policies must be endorsed (if possible) to add the requested terms
Keeping up with insurance requirements to determine if contract obligations can be fulfilled is a task best left to your insurance or legal advisor so you can concentrate on managing and running a successful, thriving business.
Contract language review from a risk management and insurance perspective ensures your competitive edge
Does your advisor help you look at the fine print? Contact Team Koppinger, a great relationship starts with a conversation