Risk Transfer

In Chicago Illinois every time you hire a contractor, enter into a maintenance, or service or vendor agreement, or lease out a building or equipment, chances are you sign a contract detailing the terms of the agreement.  Such contracts should also transfer the responsibility to pay for liability accidents from you to the contractor, service provider, tenant, or manufacturer.  Without an effective risk transfer program you can be stuck with the hassle and the responsibility to pay for these losses even though they are someone else’s fault.  An effective risk transfer program will protect your assets and lower your insurance cost.

How can you control this exposure?

When you enter into these contracts you usually have the opportunity to use your own contract, or amend the other party’s contract to include provisions that require the other party to:

• Hold you Harmless and Indemnify you from all monetary damages owed because of liability losses arising from the work, product, or service provided, and
• Provide you with a certificate of insurance to verify your status as an additional insured on the liability insurance policy.

Both of these measures are needed to ensure that responsibility for any loss has been transferred to the appropriate party.

Essential Certificate Administration

The Certificates of Insurance you receive can provide you with proof of an important source of additional insurance.  You should have a structured administrative program to maintain your certificates of insurance, which are likely to be the only proof you will have that you were added as an additional insured to another’s policy.

Be sure to obtain Certificates of Insurance from vendors, tenants, contractors/subcontractors, and service/rental providers in conjunction with the signing of the contract.  In order to provide you with additional insurance protection, the certificates must indicate that you have been added as an additional Insured for General Liability coverage.  If you are not shown as an additional insured, return the Certificate with a request to be added as an additional insured to the policy.

You should be added as an additional insured to all applicable coverages.  Guideline minimums limits of insurance for low hazard operations are:

General Liability & Auto:            $1,000,000 / occurrence, accident

Professional (if applicable):       $2,000,000 per claim

Higher limits are prudent for more hazardous operations ($2-$15 million).  Certificates of Insurance expire when the policies they represent expire.  The Certificates you receive should be set up on a diary system so that when the policies of your contractors, vendors, etc., renew, you request and receive new certificates, verifying your being included as an additional insured on the renewed policies.  Retain copies of certificates for at least ten years after they expire, the longest possible statute of limitations period.

Contractual hold harmless and indemnification agreements are often difficult to evaluate.  This won’t be a problem if you use your own contract with your standard Hold Harmless/ Indemnification and Additional Insured requirement language that has been previously approved by your attorney.  If you do not use your own contract, have your attorney review the contract prior to your signing it.  In this way, you can make well-informed decisions about the possible assumption of liabilities.

An effective administrative control program will assist you in protecting your interests.  See your attorney and your insurance agent – they can provide valuable insights into risk transfer and can assist you regarding your certificate of insurance program.