The next piece of the Contractual Risk Transfer (CRT) puzzle

Risk Transfer: Managing Third Party Relationships
Critical to Protecting your Business

Contractual Risk Transfer (CRT) is accomplished through a combination of provisions negotiated between businesses at the beginning of their relationship before a loss or claim occurs.

One of the most important steps in CRT is to have a written, signed, and binding contract in place that spells out the terms, commitments, expectations, and legal requirements of the relationship. 

Consider the following questions when determining the type of risk transfer that is best for you:

1. How can I establish the best working relationships with others?
2. What types of risk transfer are most common in my area and industry?
3. What type of risk transfer offers me the most financial protection?
4. Who will review my contract to ensure it's legal and in my best interest?

There are many, but the most common types of clauses that are contractually used to allocate risk effectively include:

• Indemnity (indemnification)
• the process through which one party transfers, or assumes, risk and responsibility for loss to or from another party to the contract.

• Duty to Defend
• The promise to provide for a legal defense to hire counsel whereby one party promises to accept responsibility for any costs or work related to lawsuits.

• Hold Harmless
  • A clause used as a release of liability in a contract, protecting one party from injury or property damage caused by another party
  • By signing the clause, the other party is agreeing not to hold the other party legally responsible for the risks involved in certain services
  • What does subrogation mean in insurance?
    • When you file a claim, your insurer can try to recover costs from the person responsible for your injury or property damage
  • A waiver of subrogation is an acknowledgement by an insurer that it has no right to subrogate against a liable third party after it has paid a loss on behalf of its insured.

Within the CRT process, the contract will require the indemnitor to obtain and provide proof of insurance to back up its commitments.  We will discuss Certificates of Insurance and requesting Additional Insured status in our next update.  Stay tuned for the final segment of our series.

Managing risks makes you less likely to be faced with financial and reputational loss
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flowchart: Cincinnati Insurance Companies