Contractual risk transfer is a risk strategy to reduce the cost of risk for a business by transferring the cost of certain
risks to another entity's risk program. This transfer takes many forms, but is common when a hiring company engages a sub-contractor, or when one entity rents or leases property to another and wants the lessee, or renter, to be responsible while they have use and control of it. We'll address a few of the more common ones here.
A common insurance requirement is the Additional Insured. A hiring company will often ask the subcontractor to name the hiring company as an additional insured, so if something goes wrong, the sub contractor's insurance program will take care of the claim. By off-loading these from the hiring company's risk program, they transfer the cost too. (More here in our Additional Insured blog)
Landlords will often ask tenants to name them as additional insureds, so that if a guest of the tenant is injured, the tenant's insurance takes care of the claim. Again, the cost has been transferred.
Another is "Waiver of subrogation". Subrogation is the process whereby insurance companies go after each other based on who was ultimately responsible for a loss. A simple example is when my fleet insurance company pays a collision claim, then goes after the company of the driver that actually caused the accident. Agreeing to waiver of subrogation means that the subcontractor's insurance cannot go after a hiring contractor's insurance, even if they are responsible for whatever happened. If an electrician's employee is hurt at an unsafe contractor's work site, the claim still goes on the electrician's experience, not the responsible contractor's. (More here in our Waiver of Subrogaation blog)
Many B2B contract include "hold harmless" and "agree to indemnify" language, which are corollaries to the insurance provisions described above. For deeper details on these legal terms, always consult an attorney. Gordon Atlantic networks broadly with other professionals, including construction attorneys, contract specialists, employment practices attorneys and litigators. If you need a good specialist, we probably know a good one. Don't hesitate to ask if you need specialized help.
For our video on the topic, click below: