Whether it’s a start-up company or an established corporation, businesses regularly enter into legal agreements that include common insurance requirements. Attorneys generally draft these legal contracts – and the majority of them aren’t up to speed on the
latest insurance forms and terminology. In fact, it’s almost a rule rather than an exception to find insurance terms used in contracts that bear no resemblance to current usage.
There are some common sense do's and don'ts in drafting insurance requirements in contracts, whether asking for or giving insurance. They include the following:
- Keep insurance requirements as simple and easy to implement as possible. Minimum coverage requirements should conform to what is commercially available in standard policy forms.
- Don’t ask for something that is not commercially available in the current standard insurance marketplace. Requiring something for which there are no standard forms or endorsements can be a catalyst for problems.
- When another party already has an insurance program in place, assume it’s a well written and comprehensive program and ask for what you would expect to see in such a program. Try to avoid imposing requirements that would require them to renegotiate their program with their insurers.
- Allow the other party a reasonable amount of flexibility with respect to how they meet the overall requirements.
- Recognize the possibility that the requirements could become outdated during the term of the contract due to insurance market changes and policy form revisions. Make allowances for addressing these changes.
Kapnick Knows Insurance.
Whether it’s a simple policy question or an in-depth look at needs-based coverage, rely on Kapnick to offer the insurance expertise you need and the courtesy you expect.
