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Contracting Pitfalls Part Four: Insurance Provisions

            Many contracts specify required insurance coverage and allocates which party must carry it.  It is not unusual that many of these will actually require coverages that you do not have, coverages that do not have anything to do with the contract itself because it is written too broadly, and sometimes coverages that actually cannot even be commercially acquired.  Usually, when there is required insurance, there is some obligation to provide evidence of this insurance.  Sometimes a party is required to be added as an additional insured to your coverage and there may or may not be a requirement to obtain a waiver of subrogation under the coverage.

             Unless you are extremely conversant with your insurance coverage and understand a great deal about the types of insurance that may be available, we strongly recommend that you have the insurance language reviewed by your insurance agent to determine whether or not you have the required coverages in the appropriate amounts.

            The failure to provide a required insurance coverage can have catastrophic consequences in the situation where there is a casualty that was to be covered by the insurance you were required to provide—but did not.  In that event, your business could be exposed for the loss even though your business might not otherwise have been liable.  

            It is also frequently a good idea to understand the impact of an insurance provision before you price a contract.  If you are going to be required to buy additional insurance in order to conform to the contract, you may want to work that in to your pricing before signing a final agreement.