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Is your existing Insurance Program providing you adequate cover?

Contract Reviews and Insurance

After tendering, negotiating and working hard to secure a job, signing a Business Contract can seem like a mere formality,  – You’ve got insurance – so if anything goes wrong you’re covered, right?

In an ideal world, insurance would cover every conceivable risk that you’ve contracted into, however we live in the real world, where insurers have fine tuned what they are willing to insure.

Whilst most businesses understand the importance of engaging the assistance and advice of a qualified professional legal company, when it comes to contracts, the insurance aspect is more often than not overlooked.

At this stage, whilst it may appear  that all areas of importance have been addressed ,  in the majority of cases it can still be a big step from here  to drafting contractual changes that enable the business to maximise the coverage provided by the insurance program which has been  so carefully put together by the business and your Insurance Broker.

Many business owners are unaware that a typical Public & Products Liability (and most professional liability) policies actually exclude Contractual Liability coverage, unless specifically agreed by your Insurers on a per contract basis. However despite this fact, most business will unknowingly sign off on work contracts which include specific contractual requirements within their Indemnity Clauses such as: -

Hold Harmless Agreements (i.e. “In the event we are at fault, you can’t sue us”)
Onerous Indemnities & Warranties (i.e. “We are responsible for nothing, and you are responsible  for everything”)

By agreeing and signing off to these conditions, you are effectively signing away your insurer’s rights of recourse and legal positioning in the event of a claim. If you have not had your insurer agree to these contractual requirements, your insurer will most likely decline your claim as these are contractual liabilities which have prejudiced the insurer’s position in protecting you.

Most Contracts will call on you to provide coverage for: -

  • Workers Compensation Insurance;
  • Public & Products Liability Insurance;
  • Contract Works Insurance (also possibly Difference in Conditions, or Difference in Excess requirements);
  • Motor Vehicle Insurance;
  • Professional Indemnity Insurance.

Based on recent reviews we have conducted for our existing clients, one of the most commonly raised issues revolve around Indemnity Clauses and Contractual Liability Exclusions.

Indemnity clauses and contractual liability exclusions

Presently we are seeing an increased number of extremely onerous clauses within most contracts. In the past these types of clauses were generally limited to those submitted by the larger corporations and /or Government Bodies. However, in the recent years, we are  seeing more and more of these across all levels of industry. It seems to have set a precedent for the basis of most contracts today.

Examples of such clauses are:

The [service provider] and the firm or business of which they are an officer or employee indemnify and continues to indemnify [client] and its officers, employees and agents, against any claim or proceeding, and against any liability, damage, loss, cost or expense (including legal costs on a full indemnity basis) arising directly or indirectly out of:

    • Any breach of this agreement (including this brief and any letter of appointment);
    • Any damage to real or personal property;
    • Negligence by [service provider] or anyone for whom it is responsible in connection with providing the services detailed in this brief and any letter of appointment.

So, if you have a Liability Insurance policy in place –  what’s the problem? Should the existing policy not cover your business for all Liability?

In reality, the majority of General & Products Liability Policies and Professional Indemnity Policies will contain a standard contractual liability exclusion clause which reads as follows:

[Insurer] will not pay for any amounts insured under the policy for or arising out of … a liability which the insured has assumed under a contract unless such liability would have attached in the absence of such contract.

Indemnity clauses like this are included to make it easier for a third party to sue your business successfully.  Also – it is important to note that such indemnity clauses could void all or part of your existing liability insurance if not property declared and addressed with your insurer, because assumed liabilities are specifically excluded under a standard General & Products Liability Policy.

We understand and recognise the fact that nobody knows more about your business more than you do. When it comes to navigating through contracts (small and large) we also recognise from experience that his can be a logistical nightmare  from both an insurance and legislative perspective.

At Austbrokers Risk an Insurance Services, we have in-house  specialists with many years of experience in the Commercial and Workers Compensation Insurance areas which would welcome the opportunity to discuss and review any concerns you may have with respect to existing contracts and / or any prospective contract you may be  looking to enter into.

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