Contracts: Read Before You Sign

November 2, 2018

Businesses frequently enter into contracts with suppliers, vendors, independent contractors, landlord/tenants, and other service providers. In those contracts it is common to find language which transfers the liability of one party to the other in the event that bodily injury, property damage (tangible and intangible) and other liabilities arise out of the contractual relationship. The liability may involve both insurable and non-insurable liabilities upon the contracting parties. The contracting parties, and their supporting legal and risk advisors should review in detail the contractual language and what liabilities may be assumed due to the contract. Contractual Risk Transfer is one of the five traditional risk management techniques within a business. These techniques include: Risk Retention, Risk Control, Risk Avoidance, Insurance Transfer & Contractual Transfer.


Normally spotting the language within the contract that involves risk transfer will be clear and obvious, for it will be clearly titled “Indemnification”, or “Indemnity and Hold Harmless.” Keep in mind, in some cases the language may be embedded in other clauses of the contract such as the “Insurance” clause. Great care should be taken in reviewing the language, for a business may unwittingly assume damages, legal expenses or other expenses they did not intend or desire to assume.

Do not assume what may have been the verbal intent of the parties is reflected correctly in the contract language, “Trust, but verify.” When in doubt seek proper legal counsel. Please also note that in most cases insurance may or may not provide full support to the indemnification clause due to the existing insurance policy terms, conditions and limits. It is important to consult with your insurance advisor in transferring risk utilizing your insurance contract. They can address any changes to your insurance policies required to support your contractual obligations under the contract. It is recommended that your insurance advisor review documents, such as certificates of insurance, received from the other party to confirm compliance with any insurance requirement of that party under the contract. Again remember, “Trust, but verify.”

Risk prevention is crucial and taking the precautions before committing to a contract or entering a new business venture will increase your risk management techniques and promote valuable insight.

With ever changing rules and regulations, the Agri-Business team can meet your needs, whether you are a global enterprise or an entrepreneurial startup company. ABIS has the experience and market presence to put together a risk management solution tailored to your specific needs. Contact an agent today!

For More Information:

Article for reference: Oklahoma Grain Company Must Pay BNSF’s Defense of Fatal Train Crash Suit 

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