Exclusively from Foa & Son
Businesses of all types commonly enter into agreements that contain certain requirements for types of insurance pertinent to the engagement at hand. Whether you are being required to provide evidence of certain types of insurance, or are requiring others to provide it, we usually see certain common errors.
Most commonly its attorneys drafting these contracts. Few attorneys seem to be up to speed on current insurance forms and terminology; it is almost a rule rather than an exception to find insurance terms used in contracts that bear no resemblance to current usage. There are also some common sense do’s and don’ts in drafting insurance requirements in contracts that should be kept in mind, whether asking for or giving insurance.
A few common sense pointers:
1. Require insurance that will provide adequate scope of protection needed to cover the primary risks associated with the business relationship the contract describes.
2. Keep insurance requirements as simple, understandable and easy to implement as possible. Minimum coverage requirements should conform to what is commercially available in standard policy forms.
3. Don’t ask for something that is not commercially available in the current standard insurance marketplace. Requiring something for which there are no standard forms or endorsements is a recipe for problems.
4. Remember that the other party already has an insurance program in place; assume its a well written and comprehensive program and ask for what you would expect to see in such a program. Try to avoid imposing requirements that would require them to renegotiate their program with their insurers.
5. Allow the other party a reasonable amount of flexibility with respect to how they meet the overall requirements.
6. Recognize the possibility that the requirements could become outdated during the term of the contract due to insurance market changes and policy form revisions, and make allowances for addressing those changes.
Insurance policies and forms are not written in stone, they continuously evolve over time as the insurance industry amends them to reflect new and changing exposures and risks. As new forms are introduced (generally on a three year cycle) and approved by regulators, old forms are withdrawn from use. Contractual insurance requirements that might have been current ten, twenty or more years ago are now antiquated, but attorneys tend to replicate insurance requirements over years or decades and from contract to contract. As a result, obsolete language in contractual insurance requirements seems to be the rule rather than the exception.
Outdated requirements are particularly common for general liability insurance, although they can be found with all types of policies. Here is a list of some of the most commonly seen obsolete insurance terms found just in insurance requirements for general liability policies. Any one of these terms is a red flag:
• Comprehensive general liability insurance
• Public liability insurance
• Manufacturers and contractors (M&C) liability insurance
• Owners, landlords, and tenants (OL&T) liability insurance
• Contractual liability insurance
• Additional named insured
• Cross-liability endorsement
• Broad form comprehensive general liability (CGL) endorsement
• Broad form property damage endorsement
• Combined single limit (CSL)
These terms are all antiquated and outdated, none are in current usage; if you find them in a set of insurance requirements you are reviewing, or in the requirements you impose on others, its time to make some changes. Give us a call and we’ll help you with that.