The Commercial Line

<< Back

Tips to protect you from unnecessary liability losses

Post written by Tony Vicari, CPCU, Quality Assurance Analyst

Risk transferA subcontractor seriously injures himself with a circular saw at your place of business. Or a roofer starts a fire while performing work at an apartment complex you own. In either case, you and your insurer could be held financially responsible if the contract you entered into contained wording that transferred responsibility back to you.

How could a claim that was another party’s fault become your responsibility?

Some service providers have become legally savvy in creating contracts that transfer their liability to you. If you hire a service provider or contractor, that person should be responsible for all work activities and not pass responsibility back to you.

Risk transfer agreements are your protection. They are a legal risk management and control strategy that involves contractually transferring responsibility for a potentially hazardous activity from one party to another. It’s important to minimize your financial risk and to indemnify you against lawsuits and other costs resulting from mishaps that are not your fault. Here are some of the more common activities for which you want to make sure risk has not been transferred back to you.

Service work. This can include building or property maintenance tasks such as janitorial, plumbing, roofing and HVAC, as well as plowing snow, landscaping and maintaining lawns.

Subcontracted work activity. This occurs when you hire another company to perform work for which you maintain primary responsibility. Examples include specialty machining, heat-treating, welding, assembly and testing, plating, painting or coating.

Other types of contracts can also serve as mechanisms for transferring risk.

Lease agreements. Risk is transferred through lease or property management agreements. This document protects you from the hazardous activity of a tenant on a property you own.

Rental agreements. These contracts transfer the risk when you rent equipment or machinery to others. Because the party renting the equipment is controlling its use, that person should assume the risk.

How to safeguard your operation

In the case of service or subbed work activity, you should first require a certificate of insurance from the company providing the work, issued in the name of your company, generally starting at $1 million limits for low to moderate risk activities.

If you control the contract language or can negotiate its wording, there are three other agreements or provisions that can benefit you. They are:

  • Indemnification agreements, which require another party to reimburse you
  • Hold harmless agreements, which require another party to assume your responsibility
  • Additional insured provisions, which provide insurance defense and damage payments for you by adding you to another party’s insurance

In addition, well-written lease and rental agreements should explicitly spell out the rights and duties associated with the property and assign responsibilities. An attorney should review both forms of agreements, and you may also want to bring them to the attention of your independent insurance agent for advice on coverage.

A good lease or risk transfer agreement minimizes the chances your company or operation will be held responsible for another party’s negligence and will help you sleep better at night. If you have questions about when or how to protect your non-construction operation from the actions of others, contact your local independent insurance agent. For a list of independent agents in your area, click here.

Do you have an interesting story about risk transfer, lease or rental agreements, or have you been involved in situations in which a contract should have been drawn up? If so, please share your experience in the Comments box below.

Leave a Reply

Your email address will not be published. Required fields are marked *