Idea Transcript
Simple Ways to Avoid Liability
AIC Institute for Excellence in County Government Legal and Ethical Issues 3/30/2017
Shift it to someone else!
Free! Legal! Often overlooked!
What are you talking about?
Contracts
Even “simple” contracts can expose your county to liability and lawsuits You don’t want to be held liable for negligence of others You are already assuming liability through written contracts or agreements without even realizing it!
Case Study: County Gets Shafted
Contracts
What do we see? – – – – –
Agreements have been used before so they must be good. (Myth) Vendor contracts. Mutual Aid Facility Rentals Waivers
Contracts – Building a Shield
Counties can attempt to shift liability to the appropriate party. – – –
Contractor Facility user Vendor
Special language or clause commonly referred to as an “indemnification and hold harmless” agreement
Indemnification & Hold Harmless Clauses
Clause requires one of the parties (a contractor performing the work) to be financially responsible to the other party (you, the local government) for any bodily injury or property damage claims made by third parties, arising out of that work.
Indemnification & Hold Harmless Clauses
Different levels of indemnification Indemnification “arising out of the contractor’s sole negligence.” Often called a Limited Form Contractor is responsible for its own negligence and the join negligence of the Agency. This is called Intermediate Form Broad Form refers to a clause that requires the contractor to be responsible for all liability arising out of the project – even the sole negligence of the Agency.
Insurance Requirements
Indemnification/Hold Harmless clause is important – however it is only part of the risk transfer shield you are building How can you be sure the contractor really has the assets is needs to PAY for its liabilities? –
Require insurance at adequate levels!
Certificates of Insurance
Proof of a contractor's financial ability to pay for a loss. Usually summarizes the essential terms, conditions, and duration of a specified insurance policy at the time that the certificate was prepared. No coverage benefits are afforded to the certificate holder.
Certificates of Insurance • When are certificates needed? • They're needed when another party performs services on behalf of your local government, has your property in their care, custody, and control, and/or controls or directs your employees.
Certificates of Insurance • When are certificates needed? • The dollar amount of a contract may not reflect the actual risk. For example, some small-dollar contracts or purchase orders (such as pyrotechnic displays or transportation contracts) are high-risk exposures.
Certificates of Insurance • What if I am not sure if a certificate is needed? • • • •
Ask yourself, what can possibly go wrong? How likely is it to go wrong? If it does go wrong, how much will it cost? Who should pay for the loss if the contractor does something wrong? • Check with your local agent or risk manager.
Certificates of Insurance
Are lower limits permitted for small contractors who are performing small jobs for us? – –
No. Small jobs don’t equal small exposures or small losses. Since smaller contractors may not have large assets, a certificate of insurance becomes very important to verify financial ability to pay for claims.
Certificates of Insurance
If a contractor's insurance does not meet our insurance requirements, should we alter the requirements to fit the contractor's insurance? –
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Typically, no. Insurance specifications have been selected to afford your local government as much protection as legally possible. Altering coverages and limits could weaken your protection. If the contractor is unable to comply with the limits requested, contact your local insurance agent or Risk Manager for guidance.
Certificates of Insurance
What if we don't have the certificate when the contractor starts the work? –
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There are no good choices when this happens (and it's why the insurance specifications should be included in bid specifications). You can either delay the work, or you can decide to go ahead with the project, basically “self insuring" the contractor until you receive and accept the certificate.
Certificates of Insurance
We've contracted for services from a large, well-known corporation. Do we still need to insist on our standard insurance requirements? –
Yes, because you don't have any way of verifying if their assets would be available for losses that might occur. You can, however, be confident in an insurance carrier who has a quality Best's rating. (A Best's rating gives you a "picture" of the financial strength of the insurance company.)
Certificates of Insurance – Some Problems
While it is a good idea to require certificates of insurance from contractors, that may not be enough to protect you in the event of a claim. Here are some facts you should know about certificates of insurance: –
The certificate shows only the coverage as of the date of the certificate. Coverages can change during the contractor’s work for you.
Certificates of Insurance – Some Problems
A certificate of insurance does not give you any rights. You do not have to be notified about changes or cancellations in coverages. Some certificates state the insurer will “endeavor to” provide notice. This only means the insurer will try. The way to create an obligation of notice is through a policy endorsement.
Certificates of Insurance – Some Problems
Certificate forms are fairly standardized and don’t include information about significant policy conditions or exclusions that may exist. Confusion about what job or operations a certificate applies to can arise if the information on it is incomplete. Make sure the description block near the bottom of the certificate is not left blank. Or try tying the certificate to a contract number.
Certificates of Insurance – Some Problems
Aggregate limits shown on the certificate refer to the total limits for all losses from all operations of the contractor. – –
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These limits can be reduced without your knowledge. They can also be limited by other projects, other premises, or coverage contractually provided to other certificate holders. Ask for documentation of limits that specifically apply to your project.
Certificates of Insurance – Some Problems • Many losses don’t come to light right away, and may take place long after the work is completed. • Just because insurance was in force during the contract doesn’t mean it will be in force some years later. • The most practical solution is to do business only with reputable firms.
Additional Insured Status
Think of contractual risk management as building a shield. – –
An indemnification and hold harmless clause in your contract was one part of the shield. Getting a COI as evidence of the contractor’s insurance and ability to pay for losses was the next step in building the shield.
However, there are still gaps.
Additional Insured Status
The next step involves providing your local government with access to the contactor’s insurance protection. This important step is accomplished by requiring your local government to be named as an Additional Insured on the contractor’s general liability policy and any excess/umbrella liability policies.
Additional Insured Status Here is how it works: The contractor endorses their policy to name your local government as an additional insured. The Additional Insured status should be noted on the COI. As an Additional Insured, you must be given notice if the policy is cancelled for any reason. You now have the direct right to be defended and indemnified for losses under the contractor’s policy for claims arising out of the specified contract.
Additional Insured Status - Benefits When you are named or added as an “additional insured” to the contractor’s policy, You will now be covered by the contractor’s liability policy for a specific activity. This is usually done by endorsement on the contractor’s policy.
Additional Insured Status - Benefits When you are named or added as an “additional insured” to the contractor’s policy, Additional insured status should be shown on a certificate of insurance. As an additional insured you must be given notice if the policy is cancelled for any reason. You now also have the direct right to be defended and indemnified for losses under the insurance policy of the contractor for claims arising out of the specified contract.
Additional Insured Status - FAQs
Should I always ask for our local government to be named as an "additional insured"? Additional insured means that your local government will be named as an "insured" on the contractor's insurance policy. If the contractor is negligent and a claim is filed against you, the contractor's insurance company defends the claim for you.
Additional Insured Status - FAQs
Why do we need an indemnity clause if the contractor names us as an additional insured on their insurance policy? Insurance is only one way the contractor can protect us. If there is an indemnity provision in the contract, the contractor is obligated to indemnify us whether their insurance covers the loss or not.
Contractual Liability
Some losses might not be covered by the contractor’s insurance It is still important to have hold harmless & indemnification clauses in your contract –
This way the contractor is still obligated to indemnify you whether their insurance covers the loss or not!
Contractual Liability
No system is perfect, but a contractual risk management process using – – –
Effective contract language Obtaining Certificates of Insurance Being named as an Additional Insured
Can help shield your county from unnecessary contractual liability.
Contractual Liability
Questions?
Contractual Liability
Thank You!