A standard feature of commercial contracts is a section—usually entitled “Insurance”—that specifies the insurance coverage that one or more parties are required to maintain. I’m regularly surprised at how contract parties are willing to throw something together without input from insurers.
For an antidote to that sort of improvised approach, see this post by Mark Anderson on IP Draughts.
I agree that insurance provisions are often overlooked. As in Mark Anderson’s article I encourage clients to have their insurance broker provide them with written confirmation that the broker has obtained insurance in compliance with the contractual requirements of the agreement. My impression is that very few contracting parties are prepared to press their insurance agents on the point and often just send copies of binders to the opposite contracting parties and accept the other parties’ silence as some sort of confirmation that the insurance complies (which is not the case generally and the silence is most likely a symptom of the other parties unwillingness to make the effort dissect the contractual provisions and the insurance policies to confirm they match up). Contracting parties seem to assume that the insurance provisions are technical boilerplate beyond their understanding that somehow the lawyers understand. Less excusable is when the lawyers themselves don’t examine the insurance provisions carefully and make the same assumptions.
My recommended approach to getting clearer insurance provisions has three parts. The first part (and arguably the most difficult) is to identify all of the potential sources of liability that the activities associated with the contract could give rise to (i.e. before responsibility for those liabilities is moved around by contractual provisions or insurance). The second part of the
approach is to decide as between the parties whether the allocation of liability is to be altered in some way (i.e. one party is to indemnify the other for losses suffered by or third party claims against the other party) and not leave this to be implied from other provisions. The third part of the approach is the drafting of the provisions that actually address insurance. Arguably there is a fourth part of the approach – comparing the policies that are offered up against what the contract required.
I completely agree with Mark Anderson that it is necessary to involve the insurance providers (broker or underwriter) in the process since there is no point in drafting a contract requiring insurance that no insurer is prepared to underwrite a policy for. I prefer to have the entire contract forwarded to the insurance underwriter/broker (not just the sections dealing with the insurance that the parties are contractually mandated to provide). For a larger enterprise the
insurance underwriter’s/broker’s job may not just be to obtain the contractually mandated insurance but also to examine what liabilities may have been contractually moved around under the agreement and to advise their insurance customer as to what coverages the customer could obtain to backstop those reallocated liabilities (whether or not the contract itself requires that proof of insurance be provided or not).
Sometimes I suggest (perhaps tongue in cheek) that the client request a copy of the underwriter/broker’s E&O policy as a means of impressing on the underwriter/broker that the client is serious about having the underwriter/broker really analyzing the risks and policies.
Thank you for this!
Thank you for the commentary, Gord. As someone relatively inexperienced in this realm it’s invaluable to read practical advice on how to tackle such issues. I wonder though whether the reluctance of contracting parties to involve agents/brokers in the process relates to the lack of legal skills amongst insurance professionals. As Mark Anderson noted you may end up with meaningless/inaccurate answers due to a poor understanding of contract liabilities and how they interact with insurance policies.