Broker Check

What Insurance Advisers Need to Review Contractss

August 12, 2021

Almost every contract - a lease of premises, equipment rental, construction agreement, etc. - will have a requirement for one or both parties to show evidence of insurance. Sometimes the requirement will be brief and non-specific; others can be quite detailed, sometimes unnecessarily so. Managers understand they must forward a copy of their contracts to their agent or broker, but some think just sending the insurance requirements with a request for a certificate is enough. Since I've reviewed more of these requests than I care to count, I can say with authority that more information is needed.

First, we need details about the subject of the contract. This is especially needed when a subcontract is part of a larger project. What is to be done, what is the contract price, how long will it take? These details are needed to determine if any operations are not covered by existing insurance policies. Depending on contract size and length of project, some insurance requirements are not necessary. (For example, a one day job to be completed within a week of contract signing does not need a 30 day notice of cancellation.)

Although insurance requirements may take up one page of a long document, there probably are other relevant portions. Many contracts require indemnification of not only a contractor by a sub-contractor but also the owner and possibly others. Some contracts require defense and indemnification of an indemnified party's sole negligence. These terms may not be covered in an insurance policy. A contract may include requirements to comply with environmental laws or non-disclosure of confidential information, but not require insurance for these risks.

In addition to a sub-contract there may be a prime contract between an owner and contractor which obligates a sub-contractor to its terms and conditions. Usually we don't get copies of prime contracts so we are unaware of any exposures a sub-contractor is assuming.

To sum up, when you receive a contract send us a copy (before signing it, please!) of all documents. We would rather skim over parts that are not relevant than ask for more information. After review we may inform you more insurance is needed, or suggest terms may need review by your attorney. Our aim is to know what you are assuming and make sure you are properly covered.