What is Contract Insurance?
You arrive at the client meeting, pen in hand, ready to sign a new contract. But, upon reading the fine print, you notice insurance requirements. You wonder why and what steps to take to secure the contract.
We’ll answer your questions about contract insurance and the coverage you might need.
Why Clients Require Contract Insurance
Usually, clients ask for contract insurance to protect themselves. They want to know you can fulfill your services as agreed.
They have the right to ensure your business can back up its services. This is why they might include insurance requirements in the contract.
If you don’t meet the contract’s service standards, a client might file a claim. Even if you’re not at fault, having insurance is wise.
Types of Contract Insurance Coverage Needed
Two main types of contract insurance are often needed:
- professional liability
- general liability
Professional Liability Insurance
Professional liability insurance, also known as errors and omissions insurance or E&O, protects you from negligence claims. It covers your professional services.
General Liability Insurance
General liability insurance guards your business against third-party claims. It covers bodily injury, medical costs, and property damage. Most contracts demand at least $1,000,000 of coverage.
Business owners policy and additional insured endorsement are also sometimes required.
Business Owner’s Policy
A business owner’s policy, or BOP, combines general liability and property insurance. It’s a comprehensive package.
Additional Insured Endorsement
An additional insured is someone added to your policy for protection. It shields them from liability if your actions cause a claim against them. This applies to general liability and property insurance. Most insurers don’t include it in professional liability policies.
Other Documents You May Need
Certificate of Insurance
Your client might ask for a Certificate of Insurance (or “Cert”). It proves you have an insurance policy.
It shows the insurance type, limits, deductibles, who it covers, the insurer, and the policy dates.
Acord Insurance Certificate
An Acord certificate is a widely accepted insurance proof. Agents and brokers often issue it.
Waiver of Subrogation
The Waiver of Subrogation stops the insurer from seeking restitution from a third party after a loss. It’s a protection for the third party.
ISO Form
The Insurance Services Organization (ISO) creates standard policy forms. Many insurers use them.
Primary & Non-contributory Clause
A primary policy is the first to respond to a loss. Clients might not want their insurance to respond if yours can. This clause ensures your policy is primary.
Broad Form Contractual Liability
Contractual liability insurance covers liability in various business contracts. Insurers offer this coverage through a broad form endorsement.
Conclusion
Understanding all the coverages, documents, and forms needed can be confusing.
A skilled insurance agent can help. They can also review the contract with an attorney to ensure it’s legal.
In summary, if your client requires contract insurance, make sure you have the necessary protection for your business.