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Corin Cook

By: Corin Cook on September 18th, 2023

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How Contracts/New Contractual Requirements Affect your Insurance

Business Insurance | commercial insurance

When was the last time your business signed a contract? Well, if you’re anything like us at Berry Insurance, the answer is probably very recently and fairly often.

But, how often do you actually thoroughly review those contracts? We can guess your answer is probably very rarely, or even never.

We get it. Contracts tend to be very lengthy, confusing, and dull -- plus, we assume the person we are signing the contract with is going to inform us of all the important details anyways, right?

Well that’s not true, and we know from experience.

We actually just reviewed an addendum to one of our existing contracts and realized we needed to buy more cyber insurance

We can help you be prepared for similar situations. Although we are not lawyers over here at Berry Insurance, we know insurance and we know what to look for in the insurance section of contracts to make sure our clients are fulfilling contractual obligations and getting the right commercial insurance coverage. We’re hoping we can help you too.

Insurance language to look out for in your contracts

So you’re signing a contract for your business to work with a contractor or vendor. We can probably assume what it looks like: you browse the headers, skimming for an overview and searching for the main points such as the price, length of the agreement, equipment requirements, etc. Then you get to some of the “small print” like the insurance section and you skim it without really scrutinizing, assuming you aren’t missing anything.

But believe it or not, if you don’t thoroughly review the insurance requirements, you could be actually missing a lot and violating your contract.

So here’s what to look out for:

Many contracts contain specific language such as non-contributory wording, hold harmless agreements, waivers of subrogation, and additional insured status; they also may be seeking CG2010 and CG2037 forms. While there are many terms for it, these items are essentially making you (the subcontractor to their general contractor) the party whose insurance would be used if there was a situation resulting in an insurance claim.

And with this agreement, the contract may also be asking you to have certain coverages or limits on your insurance.

In our recent situation, we were reviewing an addendum to a contract with a vendor, the contract required us to have a protocol in place for cyber liability, as well as one million dollars in cyber liability insurance (which we were just shy of).

We immediately made the necessary changes (followed by promptly reviewing all of our other contracts), but if we hadn’t, we could have been dealing with some unfavorable situations down the road. 

Why reading the insurance contract requirements is important

So what are these unfavorable situations that could happen, you ask? What could actually happen if you are failing to meet insurance requirements on a contract? Well, a few things.

For one, it could just be inconvenient and slow business down. If the vendor or contractor you’re working with asks for a certificate of insurance (COI) to prove you have the right insurance coverage and you realize you don’t, you will need to take the time to modify your insurance policy and get a new certificate of insurance. In the meantime, this could hold up urgent business and potentially cost your business some time and money.

But it can get much worse.

If you aren’t meeting your contract’s insurance requirements and there was a situation resulting in an insurance claim, you could be stuck with a large out-of-pocket expense, a lawsuit, a nullified contract, and the loss of the partnership.

Without the right insurance coverage per the contract, you could also not be paid for the job that you did, since you were technically breaching the contract.

In our situation, if we hadn’t increased the cyber coverage and experienced a cyber attack that compromised the information of the company we signed the contract with, we would not only have to pay the claim, but the company could also sue us for even more, and end our valuable partnership.

As business owners, we always assume these situations won’t happen to us, but they could, and the results could be detrimental. 

Know what you’re signing

We know you have a lot on your metaphorical plate as a business owner. Every day, you’re probably worried about productivity, increasing revenues, HR issues, IT issues and so much more.

But you also need to be thinking about your contracts and make sure you actually know what you’re signing when you do.

We know it can be daunting, especially if you aren’t familiar with all the ins and outs of insurance like we are at Berry Insurance.

But if you need us, we are here. Feel free to schedule an appointment so we can help you decipher your contracts and make sure you have all the correct insurance you need.