Wednesday, November 9, 2011

Managing Insurance

On March 10, 2011 I did a blog about Insurance that discussed both the types of insurance and key terms that may be required in insurance provisions. If insurance protection is important, you may not be able to just rely upon the fact that the contract requires the insurance, you may also need to manage it.

What does managng insurance mean?

First, it requires gettng copies of the actual insurance policies to see proof of insurance.

It means checking the insurance company and whether they meet any financial requirements for the insurance company that was specified in the insureance term such as an AM Best or similar financial rating.

It means checking the actual insurance policy to ensure that it is effective, it contains the necessary coverages required and it meets any requirements around deductibles or exclusions.

It means checking to ensure that the policy meets a number of requirements that were specified in the term such as:
Buyer is named as an additional insured
Buyer being named as a loss payee.
It provides coverage for subcontractors.
The insurance is primary and non-contributary
The insurance includes a waiver of subrogation against the buyer;
Severability of interests is addressed so Buyer and Supplier’s interests under the policy are treated separately for purposes of coverage under the policy.

If you’ve never reviewed a policy before I would always suggest that you schedule an appointment with your company's insurance expert to review it. Insurance speaks in a language of its own so you need that first review to be one where you learn what things means and what’s acceptable and what wouldn’t be acceptable. Then unless they want to review all of them you can come to them when you have questions.

It also means getting and retaining copies of all policies, updates, changes or revisions to those insurances and maintaining them in a file for potential future needs. One of the things you need to know is claims against insurances need to go against the insurance company whose policies were in effect at the time of the injury or loss, not at the time the claim is actually made by the injured party. Injured parties can bring claims any time within the applicable statute of limitations. While a supplier may no longer exist, unless the insurance company has gone bankrupt, you still have the insurance protection you can rely upon.

One of most important terms to avoid having removed is the concept of the buyer being named as “an additional insured”. As an additional insured it makes you a party to that insurance agreement. Being a party to the agreement, you would need to be notified of any cancellation or non-renewal of the insurance. In the event the primary insured was fraudulent in their application for the insurance, their insurance may be cancelled, but as an additional insured, and provided that you were not fraudulent, you would remain protected even though the insured would not.

Managing insurance and not relying upon the contract terms alone is very important in a number of situations:
When you are dealing in activities that have high potential risk for injuried and damages.
When you are dealing with small supplier that does not have the assets on their own if they failed to procure and pay for the necessary insurances.
The company you are dealing is not financially stable and may not be around in the future.
When you have low limitations of liability with the supplier and would be limited in terms of what you could recover from the supplier if they breached the agreement and failed to procure the required insurance.

If you learned from this post, think about how much more you could learn from the book.
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