Effectively Manage County's Risk through Contractual Risk Transfer

Effectively Manage County’s Risk through Contractual Risk Transfer

When undertaking any project or business transaction, significant risks and financial consequences are present. Those risks can be effectively managed through contractual risk transfer, which is the approach of combining the non-insurance risk transfer methods of indemnification and hold harmless clauses with insurance risk transfer. This article summarizes the basics of managing proper contractual insurance requirements for your county.

In many contract situations, insurance is the only source of funds available for another party to honor its indemnity obligations, so it is critical that the insurance requirements are properly drafted and included in each contract. Considerations for all contract situations are as follows:

1.Determine desired insurance requirements by contract type. Construction contracts and those for professional services or special events, for example, will have differences in the types of insurance that are needed. A few different standard requirement templates will be adequate to address most contracts. The templates will detail all coverage types, limits, and special policy provisions that are required.

2.Address any special or unique risks. Some contracts will inherently present greater exposure to frequent losses or potentially severe losses, such as those with large crowd exposures, hazardous materials, or significant construction. Those contracts involving access to sensitive data or information also present unique risks. A risk assessment checklist and limits matrix will help determine when to require additional types of insurance or higher limits.

3.Provide insurance requirements as soon as possible. It is important that other parties are aware of the insurance requirements of the county early so that they can adequately obtain the required coverage and account for any potential increased costs. It is a best practice to include the requirements in a Request For Proposal or other solicitation process, reducing negotiation time and increasing compliance once the contract has been awarded.

4.Obtain certificates of insurance and verify. Use a certificate checklist to easily help determine that the coverages, named insured, insurance carrier, and policy effective dates are adequate. It is important to obtain recently issued certificates prior to starting work, and it is recommended to receive the certificates directly from an authorized insurance representative to ensure authenticity. Updated certificates should be obtained at appropriate intervals such as semi-annually throughout each contract for proactive certificate management. Reserve the right to obtain full copies of the policy and/or endorsements to verify coverage is as described on the certificate of insurance.

For more information on contractual risk transfer, attend one of the Contracts for Local Governments classes offered by LGRMS during July and August. For class dates and registration, please visit the LGRMS Event Calendar. A Local Government Contracting and Risk Management Manual will be provided.

ACCG
http://www.accg.org/