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Business Protection Bulletin


By January 1, 2010No Comments

In the U.S. today, one result of corporate downsizing, is that there are many independent contractors in the marketplace. After picking themselves up off the ground and dusting off their overcoats, many former members of “Corporate America” have struck out on their own. With that shift comes freedom, but also new anxieties, and, perhaps, new found insurance issues. One such issue is that of the business contract.

Detailed business contracts with explicit and often confusing legalese have become a common document for independent contractors to evaluate. The contractor must often either acquiesce to unfavorable terms dictated by corporate legal departments, or forego the contract. Below are some suggestions on how to resolve the contractual dilemma of whether or not to sign on the dotted line.

  1. Speak with your attorney. Although it might not be practical to have a lawyer review every contract offered to you prior to signing, it is usually better than the alternative. It is probably better to limit the legal review to advice rather than negotiations, though there are some contract negotiations for which it would be appropriate to have a lawyer or a representative agent present. However, for a typical small contract where you are being asked to sign boilerplate language, it might send the wrong signal to your client.
  2. Consult with our insurance agents. Contracts generally contain clauses that might impact your insurance coverage. They might require either indemnification, certificates of insurance, and/or additional insured status for the client (on your Professional Liability, General Liability, and/or Workers Compensation policies to name a few). Each of these provisions could impact your insurance as follows
    • Indemnifications – a typical indemnification provision looks something like this: “Consultant (or contractor or subcontractor)” shall indemnify, defend, and hold harmless Client against any and all claims, liabilities, losses and expenses arising out of or in connection with Consultant’s performance of the Services hereunder … ” This is considered a unilateral indemnification. It is the least favorable to the contractor and you would do well to request a mutual indemnification provision where both parties agree to indemnify the other for liability arising out of their respective negligence. The worst that can happen is your suggestion being rejected.
    • Certificates of Insurance – it is quite common for certificates of insurance to be requested by your client. This documentation of your insured status serves as a confirmation to the existence of your coverage. With the request often comes a provision for notice to the client if coverage lapses. Check with your insurer to see if he will agree to this provision. Many insurers don’t have a mechanism for notifying certificate holders of the imminent lapse of a policy and will not agree to, though some will compromise with less onerous “endeavor to” wording, such as, “we will endeavor to notify you within 30 days of the termination of the policy … ”
    • Additional Insured – additional insured status for your client can provide an acknowledgement of the liability that you have taken on in the contract and effectively transfers the liability to the insurer, subject to all the terms and conditions of the policy. Check with our agents to see if there is any cost for adding on additional insureds. If there is any charge at all, it is usually nominal.
  3. Review your Liability insurance contracts for exclusions. Many liability contracts exclude contractual liability, with the exception of liability that would attach to you in the absence of the contract. An example of a contractual liability that might be excluded would be a penalty for failing to meet a deadline. On the other hand, indemnifications are often considered a liability you would incur regardless of the contractual provision. For instance, if a suit is brought against you and your client, and it is clear that it was your work that was being questioned, your insurer might offer to defend your client to avoid the potential for a hostile witness.
  4. Create your own engagement letter. It is always a good idea to spell out your thoughts regarding payment terms, work expectations, limitations of liability, and other aspects of the work you will perform. In lieu of or in addition to a client’s contract, this letter could help to prevent future misunderstandings.