Written by Mardi Hook, Vice President, Commercial Lines
For business owners, insurance jargon can be complicated and even confusing. The complexities of commercial insurance necessitate a thorough contract review process prior to entering into a written agreement with another entity. It is good practice to refer to an insurance agent for assistance in understanding the terms and conditions, legal requirements, and specific coverages before signing on the dotted line. This will mitigate risks and ensure all parties entering into the agreement are protected.
Business contracts often outline specific minimum coverages and the types of insurance needed. These requirements can vary and are generally based on the size and scope of the exposure. As a result, there are several steps that should be taken in the review process to ensure compliance.
Identify Gaps in Business Insurance Coverage
The first step in the process is to identify any gaps in coverage. Does the contract require limits that leave the business owner with insufficient coverage? Perhaps the scope of the project involves environmental or professional risks that require specialized policies that are not in place. Once the gaps are identified, the business owner can work with their agent to add the coverage through endorsements or new policies. If the requirements seem out of line for the scope of the project, negotiating better terms is recommended.
Once the specific limit requirements have been addressed, it is important clarify any uncertainties to ensure that all obligations are met. A failure to maintain appropriate coverage could lead to a breach of contract or, even worse, if a claim were to arise and the required coverages were not in place.
Contract review serves as a protective safeguard for a company’s operations and financial stability. By taking the time to thoroughly understand and assess the insurance requirements in an agreement, they are contributing to their long-term success and developing strong business partnerships.