In business it is routine to sign contracts for leases, construction projects, service contracts, and the like. Every business owner has probably signed these contracts without knowing the significance of many of the boiler plate provisions it contains. Many of those provisions relate to liability risks which are being transferred to you that may or may not be covered by your insurance. Those contracts and agreements usually are coming from larger businesses that have the resources to manage risk in their favor.
Written agreements are a powerful tool to create, transfer or limit liability risks. Without these agreements in place, insurance companies are paying claims for you that could easily be limited or transferred to a more responsible party. Increasingly, insurance companies are encouraging small business owners to implement these risk transfer methods. When you lower your claims exposure you can keep your insurance premiums lower and more stable.
Indemnity – a clause in a written contract that creates an obligation to reimburse the other party for a loss including claim costs and expenses.
Hold Harmless – a clause in a written contract that absolves one or both parties of legal liability for any injuries or damage suffered by the party signing the contract.
Waiver of Liability (exculpatory agreements) – a clause in a written contract in which one party releases the other party from liability for their actions, if not contrary to public policy.
Waiver of Subrogation – a clause in a written contract that waives the rights transferred to insurance companies to recover damages from other parties to a contract.
Insurance requirements and endorsements – a clause in a written contract that describes the insurance coverage that must be maintained to fund certain obligations assumed in a contract.
It is becoming important for small business owners to also transfer risks to anyone providing them services or for whom they provide services by creating written leases, service agreements, insurance and additional insured requirements and other written documents to limit the liability risk exposures for their own business operations with vendors and customers. These written agreements may define your services, terms & conditions, clarify expectations, make disclosures, limit any warrantees, and in some cases provide for indemnity, hold harmless, release of liability and waiver of subrogation (where permitted by law).
In cooperation with your attorney, the agents at American Insurance can help you understand these basic risk transfer concepts. Call the Sullivans at (208)746-9646 or email LossControl [at] Am-Ins [dot] com for more information.
The content of FAQ articles are general in nature and are not intended as a substitute for professional legal, financial, or insurance counsel for individuals. Insurance coverage forms vary by issuing company and by state. For specific advice contact us.
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