Risk Management: Knowing What Hides in Your Contracts
By Jack Mahoney —
“If you always stop to read the fine print before signing anything, congratulations – your parents trained you well. If you don’t, beware,” cautions Jason Alderman in the Huffington Post. “Before you enter a contractual agreement,” the author adds, “try to anticipate everything that might possibly go wrong.”
Truer words were never spoken. Here at Gregory & Appel Insurance, helping our clients anticipate everything that might possibly go wrong has been my job description over the years. In fact, the two primary goals of any insurance professional you engage should be to protect you and deflect risk to the other parties to the contract. There is one – and only one – way to achieve those ends: in black-and-white contract clauses. As Alderman so aptly reminds readers, “Once a contract is in force, it generally cannot be altered unless all parties agree.”
Elementary? The unfortunate reality is that, in all too many instances, neither the insurance broker nor the client scrutinizes the contract, which means they often fail to understand precisely who is assuming liability for what. Yet, in the event of a claim, whatever is in the contract is going to rule.
In the world of commerce, remember, situations tend towards the complex, resembling a “tree” rather than a simple two-way street. The typical contract involves not only two parties and their respective insurance carriers, but also subcontractors. At each layer of work being done, there are unique risks which must be considered – and which need to be dealt with in detail in contractual clauses. “Joe’s been my friend for years”, “Those trenchers are good people”, “That roofer has a great reputation” – sorry, but testimonials such as these, while emotionally gratifying, just won’t cut it when it comes to enforceable risk sharing.
Take an equipment lease, for example. Company A may be renting well-manufactured equipment from Company B for a construction project hired by Company C, but exactly who will be operating that equipment? In the event of an accident, are those workers covered by their own employer’s Workers’ Compensation? If you are buying equipment, what liabilities are you buying? What warrantees are you being given?
In a joint venture construction project (with, say, General Contractor W in charge of building apartment units while General Contractor T builds retail spaces at the same location), each might employ electricians, truckers, plumbers, concrete layers and others, etc. Which of the parties is assuming each aspect of the “what if” liability?
In risk management, it really is all about the black-and-white. Reality is, bad things happen, often to very good people. My job description? Protect my client. My watchword? “Show me the contract!”