Include Your Insurance Professional to Minimize Risk

There are a handful of ways to deal with the various risks a business faces. Risk can be mitigated by implementing processes, procedures or programs. Risk can be ignored due to being unaware of its existence or a belief that the risk will never come to fruition. Risk can also be transferred by the way of contracts.

Before delving into some specifics, consider the following story one of our clients experienced: Company A manufactured a consumer product at its 150,000-square-foot building. This building was quite old and was due for a roof replacement.

Company A received quotes from numerous contractors and eventually chose one of the bids. This contractor had a handful of sub-contractors it planned to utilize. Company A had a contract in place for the general contractor, as well as contracts directly with the sub-contractors, as it had done previously. About halfway through the project, Company A’s safety manager saw a storm coming with high winds. Due to this storm, the safety manager went to find the foreman to discuss ceasing work for the day. While talking with the foreman, one of the sub-contractor’s employees slipped and fell 20 feet off of the roof. The fall resulted in serious injuries, but the worker was alert and conscious after the fall. In response to the fall, Company A conducted an investigation and discovered the sub-contractor that fell was not using a safety harness, which may have prevented the injury. It also discovered that it had yet to receive the signed contractual agreement back from that sub-contractor.

Due to the lack of contractual risk transfer, the company was sued over the incident. When the case concluded, Company A had to pay $250,000 to the injured party. Due to the high deductible General Liability Program Company A had, this settlement was paid 100% out of pocket.

The part of this story that is most frustrating is that if that contract was signed, Company A would have not had to pay anything to the injured party. One missing signature cost Company A $250,000! This issue is pervasive within all industries and all company sizes.
Some companies feel comfortable with their contractual risk transfer processes because their attorneys are heavily involved. While it is highly advised to have counsel draft the contracts, it is doubly important to include your insurance broker in this process, as well. Lawyers are certainly legal experts, but they are not insurance experts. By utilizing both parties, you can be sure that the contract is as strong as possible.

The biggest exposure exists when any construction related work is happening. Not only is it important for high risk contractors, like roofers, but it is also imperative for seemingly low risk contractors, like IT workers. Any party that sets foot on your facility CAN be injured. When someone is injured on your grounds, he/she can tender a suit. A contract will prevent legal liabilitythat may have financial implications. Essentially, anyone that sets foot on your facility for anything more than a meeting should sign some type of access agreement. This agreement can be separate from any construction contract or built into the construction agreement.

It is imperative to document this process.Of course, a copy of the signed access or construction agreement should bekept on file. The accompanying certificate of insurance should also be kept on file. For any open-ended access agreements,
the expiration date of the certificate of insurance should also be noted, so that a new one can be requested before its expiration.

This document does not provide coverage. It is simply a reference to the coverage that is in place. Companies should work with their insurance brokers to educate employees on what to look for within the certificate, including the accompanying forms. Understanding how to verify that the various coverages, limits and conditions are shown is imperative. If the signed agreement’s terms cannot be met by the insurance policy, then you could end up still having
liability due to the claim not being funded by the sub contractor’s insurance policies.

Creating a method for reviewing, documenting and following up for a new certificate after policies expire is very important. Even if you do everything correctly in the beginning, the sub-contractor could change insurance carriers at renewal, and the new policies may
not meet the agreed upon insurance requirements. If, after a claim, you find out the change in carrier resulted in inadequate coverage, it is too late— exposing your company’s balance sheet.


Located in Upstate New York, Brown & Brown Empire State is a full-service
retail brokerage offering employee benefits, commercial insurance, personal insurance, bonding, risk management and claims management products and services. It is a
member endorsed service of the Northeast Dairy Foods Association and the Northeast Dairy Supply Association. For more information, go to

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