Trying to insulate yourself from downstream risk is always a suggested (if not arduous) Risk Management Best Practice. In the attached Rough Notes article regarding Vassar College, there are a few twists and turns to take note of.
First, I think we all agree that a properly constructed insurance and indemnity provision is a critical contract component. Particularly, if the “upstream” party desires effective risk transfer. Care must be taken in drafting so these provisions are reasonable and conform to state anti-indemnity statutes.
Next, obtaining appropriate evidence of insurance is a huge but critically important undertaking. It is not sufficient to “just” get a Certificate of Insurance, but you need to make sure that relevant policy endorsements (for both primary and excess liability) are attached to the Certificate. That’s where the real fun starts. Examining the documents to ensure they reflect and satisfy the requirements specified in the contract will take some time and technical understanding.
Your next challenge is maintaining these documents in an orderly fashion, current and easily accessible. I would strongly suggest scanning the contract and proof of insurance, along with entering them into a tracking system. The ALS Group uses a “contracts register” to record this information when requested by a client.
Now that you have a good contract and supporting documentation on the counterparties insurance, using them effectively when a claim comes in is a fundamental part of this process. We strongly encourage the upstream party to take notice of both their counterparty and their counterparty’s primary and excess carriers. This is critical to preserve your rights on their policies and avoid potential “late notice” as in the Vassar case attached.
It is also very important to make it clear in the contract that all counterparty insurance is Primary and Non-Contributory. You should get endorsements or policy provisions from both primary and excess liability that evidence same.
Engineering and execution of contractual risk is arduous but well worth the effort. It is a fundamental Risk Management Best Practice to lower your company’s Total Cost of Risk (TCoR) and to demonstrate a consistent Risk Management posture with your insurance vendors.
Make the transfer terms reasonable and appropriate. Have a tracking and enforcement system and…Update! Update! Update! Vigilance is key!!!!
