Protecting Your Business Through Transfer of Risk
Your business interacts with contractors, subcontractors, vendors, and consumers on a daily basis, exposing the company to potential lawsuits. You can manage certain risks by avoiding, reducing, retaining, or transferring them. The most common method of risk transfer is to purchase an insurance policy, where specific losses are covered by an insurance company.
Another method of risk transfer is through non-insurance contractual agreements such as manufacturing supply agreements, staffing agreements, and commercial leases. There are several ways to protect your business:
- Indemnification Agreements. When worded properly, contracts can offer comprehensive coverage by including provisions of insurance requirements, additional insured status, and certificates of insurance and indemnification or hold-harmless language. This language ensures that if your business is held liable, you will be held harmless and reimbursed for any monetary loss.
- Additional Insured. Adding yourself as an additional insured onto a third party’s policy ensures that you have certain rights under that policy. This can help to protect your business from liability arising out of the other party’s negligence. Keep in mind that additional insureds are only covered for operations that involve the named insured, and that policy exclusions will also apply to the additional insured.
- Certificates of Insurance. Your business should require a certificate of insurance from subcontractors, tenants, service providers and other parties you interact with. This document provides evidence that the other party has insurance, listing the coverage types, expiration date and limits of the policy.
Before you sign any contracts, it’s important that you review them with your legal counsel and a risk management expert to better understand what you are agreeing to and limit any surprises during a loss.