Thursday, March 22, 2012

Managing Insurance

While a contract may require one of the parties to carry certain types of insurance, do contract managers need to manage the collection and checking of policies or certificates of insurance? The answer to that question is usually determined by two factors. The first is do you also have an indemnification provision in the agreement where the supplier will indemnify you against certain third party claims including those of their employees? The second is how financially stable is the other party?

If the other party is financially stable and has significant assets if they were to breach their obligations to carry the required insurances, you could still sue for the damages you sustain and they may be more than the required insurance amounts. If you are dealing with a high-risk activity or companies that are not highly stable financially or that don’t have sufficient assets to stand behind the commitments of the contract you should be managing insurance requirements.

What does managing insurance include?

1.Getting certificates of insurance or actual copies of the required insurance policies before any work is commenced.

2.Reviewing the insurance policy or certificate to ensure that the insurance meets the requirements set forth in the contract:
a.Do the coverage limits match the requirements in terms of 1) the amounts and 2) the way the limits are expressed such as total liability, total liability within a limited term or liability on a per incident basis?
b.Does the insurer meet the requirements stated in the agreement for financial stability of the insurer such as an AM Best rating?
c.If the contract required you to be named as an additional insured does the certificate or policy reflect that?
d.If the contract required you to be named as a loss payee, does the policy or certificate state that?
e.If the contract required the insurance to be primary & non-contributory, is that stated in the policy or certificate?
f.If the contract required the insurance to include a waiver of subrogation, does the certificate or policy include that waiver?
g.If the contract required that there be severability of interests, does the certificate or policy state that?
h.If the contract required the coverage include subcontractors, does the certificate or policy include that?
i.What is the insurance coverage period listed in the policy? Is it effective during the contract term? Do you need to manage getting copies of new insurance or renewals during the contract term? If you do, make a note of that and add that to your calendar to manage.

3) Ensuring the policies are current and in effect during the term of the contract, and

4) Filing copies of all policies or certificates in the contract file. .

It is extremely important to collect and keep copies of all insurance policies or certificates in the contract file, even those that may no longer be effective. That is because potential claims may occur well after the completion of the contract. Suppliers or contractors may no longer still exist. If you have a claim, you need to identify insurance policy and issuer who provided the insurance at the time the injury or damage occurred.

An insurance company is only responsible for insurable events that occur during the term their policy was effective. For example in a jurisdiction that had a statute of limitations on tort claims of six years, the injured or damaged party has six years from the date on which they were injured or damaged to bring that claim. As long as they bring the claim within the allowable period they have met the requirements and final litigation of the claim could take years. A supplier or contractor could have gone through a number of different insurers during the period. It is the insurance company that issued the policy that was in effect at the time the injury of damage first occurred who is responsible. The current insurer is only responsible for injuries or damages that occur during their coverage period. As long as that insurance company still exists, and you have proof of the insurance, you can make claims against them.

For more on insurance see my post “Insurance” on my KnowledgeToNegotiate blog.

If you learned from this post, think about how much more you could learn from the book.
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