Avoiding Impossible and Impractical Requirements
Before You Sign …
Great news! Your firm has just been awarded a new contract. You eagerly review the key terms involving scope of work, schedule and fees. As usual, the insurance requirements appear to be written in a foreign language, but you are confident everything will be okay.
This is a dangerous assumption. Many contracts include insurance requirements that are inappropriate and sometimes impossible to meet. While much care goes into drafting the business terms of an agreement, those who prepare them frequently lack the professional knowledge to assemble appropriate, attainable insurance requirements. It is not uncommon for contract drafters simply to lift the insurance requirements from an old contract. That’s where the trouble begins.
There is a smart and simple solution: Prior to signing, have the insurance requirements reviewed by experts. Your trusted insurance team will tell you whether or not the contract requirements are attainable and will help you understand the cost and risk management implications of meeting those requirements.
Impossible and Impractical
Insurance policy forms change over time. For example, coverage that had to be specially endorsed onto the “Comprehensive” General Liability policy in 1973 is part and parcel of the “Commercial” General Liability policy form today. Because such endorsements are no longer needed, they are no longer available. In fact, sometimes the forms are no longer filed in the state. Yet there are contracts written that specifically require such outdated endorsements. Some insurers will agree to add the endorsements even though it makes no sense to do so. However, many others refuse to because the endorsements are no longer necessary and confuse the intent of the policy.
In reviewing contracts prior to signing, two commonly used terms signal outdated insurance requirements that may be impossible or impractical to meet:
- Comprehensive General Liability. Since 1986, the name of this coverage has been “Commercial General Liability” insurance.
- XCU.At one time, Explosion, Collapse and Underground Subsidence were all excluded from coverage under the Comprehensive General Liability policy, but now these perils are included in the coverage unless specifically excluded.
Other “red flags” include phrases such as Additional Named Insured; Broad Form Property Damage; and Contractual Liability Insurance.
Appropriate and Attainable
Before you sign a contract, you have options. After you have signed a business agreement, your options are limited and, in some cases, nonexistent. Work with your insurance broker to find an insurance carrier that can satisfy your client’s requirements without jeopardizing the current insurance program which was developed as the best value and best protection for your business. Avoid any new program that may not measure up from a coverage standpoint or that adds excessive expense. Do not dismantle carefully constructed coverage to accommodate impossible or impractical requirements.
If an appropriate and attainable solution cannot be found, leaving you unable to submit a compliant Certificate of Insurance, you could be in a difficult position — one that could strain the new business relationship. The non-compliant situation may be unfamiliar to your client, depending on the ethics and expertise the client has encountered with previous suppliers and insurance providers.
However, armed with sound professional insurance advice and legal counsel — based on an exhaustive search for solutions — you are in a good position to negotiate with your client in the best interest of both parties. Such a partnership approach should elevate the value you and your company bring to the relationship. Through informative discussions with your client, contract insurance language may be adjusted, coverage costs reconsidered, or requirements eliminated.