by Crystal Jacobs - US Risk Underwriters
Gone are the days of business agreements on a handshake. Love them or hate them, contracts are a vital part of the world today. Contract review is tedious in any business, but security companies like any business also live and die by the contracts they engage in. It is also for that very reason that you need to remember, you control your contracts, even ones you are being asked to sign. Be heard, and if you have a problem with something speak up, don’t be afraid to push back just a little.
Limitation of Liability Clauses
The limitation of liability clause, now accepted in most states is a powerful tool. A limitation of liability clause simply put, limits what damages either party can be liable for. More detailed limitations can be added such as limiting losses from certain types of claims or capping damages at a specific limit.
Do you only use work orders? Limitations of Liability do not have to be limited to a long, formal contract. If you are doing any kind of physical labor for a customer, you need to include a Limitation of Liability on anything they are signing related to the work you are performing.
As a member of ESA, you have access to many resources that can assist you with this language. In addition, when insured through Security America Risk Purchasing Group, you have partners on your side that know how to use these clauses to your advantage during a claim.
Higher Limit Requirements – What Are Your Options?
As an insurance professional, I would be happy to see insureds purchase the highest insurance available to them. However, higher limits don’t make sense for every business or every project. I’m certain that most companies have seen an RFQ that is so over the top it almost makes sense to not reply. You know the ones, you’ve been hired to do about a $1,000 install but they want you to carry $5M limit.
Unfortunately, companies tend to apply a blanket approach to insurance requirements rather than taking into consideration what makes sense based on the work being performed or the size of the job. In most cases, you have some control over this. If it is a large project that is outside of the norm for you, think about a project specific excess policy to address the contractual requirement. However, don’t be afraid to question the need for higher limits. You might provide two quotes, one with their limit and one with a more reasonable limit for the task at hand to show them the savings. Respectfully share your knowledge and they may remember that the next time they are writing their specifications.
Additional Insureds – How Many is too Many?
Being asked to name other entities as Additional Insureds is not uncommon in this industry, however not everyone needs this status under your insurance policies. There isn’t a magic number of Additional Insureds. There should be an evaluation of your relationship to those who are being required to be added. Subsidiaries make sense generally, but does it make sense to add all subcontractors involved on a project? Do you need to name your customer’s customer? Again, you have some control – ask why it is needed. If they are adamant, you can request the same of the others involved – that they add you as an Additional Insured on their policies.
Peer Review – The Difference a Decimal Can Make
Have you ever bought a house? Did you read every piece of paper you signed? While this is seemingly a simple concept, we are so quick to sign and not read. However, regardless of whether it is someone else’s contract you’re signing or your contract you are requesting to be signed, review is absolutely imperative. Lack of a decimal can take a limitation of liability clause from $2,500.00 to $250,000. It has happened and that is a costly mistake that could have been avoided. A contract review checklist is a great tool to have in place and is something that we can help you put together.
The Bottom Line
Contracts are a lifeline for your organization. You have resources at your fingertips. Need a contract reviewed? Just ask – we can assist in contract review. Want to be able to provide quotes with and without increased limits? Just ask – we can provide indications over the phone for the costs of increased coverage. For assistance, we can be reached at 866-315-3838 or via email at USRisk@SecurityAmericaRRG.com.