As a business owner you can’t do everything yourself; this becomes more evident as your business grows and expands. To better manage your business, you may hire outside experts or contractors to help maintain your facility or provide a service to your customers. This may include carpenters, plumbers, electricians and snow removal contractors who will work on your property. This may also include a service provider hired to deliver a product to your customer, or install or service your product at your customer’s home or business.

You will enter into agreements when hiring these contractors. Your insurance agent, or perhaps a Society Insurance Risk Control Representative, will advise that you need to obtain certificates of insurance and have a hold harmless and indemnification agreement.

But what are those? Why do you need them? And what should they entail? While often spoken about in the same sentence, these are actually two different legal documents designed to protect your business from liability and financial harm. Let’s look at them one at a time.

Certificate of Insurance

A certificate of insurance is necessary when a business needs to prove that they have the correct insurance coverage and adequate insurance limits in place. This is important if a claim arises and the business is found liable while providing their service or engaged in their trade.

Think about when a snow plow contractor is hired to plow a parking lot, clear sidewalks and apply ice melt. There is an expectation this will be done in a timely and safe fashion. But what if they hit and damage a parked car while plowing the lot? The car owner will look to the parking lot owner to pay for the damage. The lot owner will expect the snowplow contractor to pay for the damage because they caused it – it’s their fault! After an accident has already happened is not the time to find out that the snowplow contractor doesn’t have auto or liability insurance.

Whenever a business enters into a contract or service agreement with another party, they should require that a certificate of insurance be provided before any work begins. The certificate should be for all lines of coverage including commercial general liability, commercial auto liability, workers compensation and umbrella.

USING CONTRACTS TO PROTECT YOUR BUSINESS:CERTIFICATES OF INSURANCE, HOLD HARMLESS AND INDEMNIFICATION AGREEMENTS

1Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

PROTECT YOUR BUSINESS FROM LIABILITY AND FINANCIAL HARM

2Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

Note that commercial general liability and commercial auto liability are different from personal insurance. Using snowplowing as an example, anyone can put a plow on a pickup truck and hire out to plow driveways, but do they have the necessary insurance to pay for any damage they may cause? A personal auto policy will provide coverage when the vehicle owner is plowing their own driveway, but that is typically the limit of the coverage. The personal insurance auto carrier will very likely deny any coverage for a loss caused by business use of the vehicle. If the vehicle owner advertises a snowplowing service or accepts money for snowplowing, they are now a business! If they are a business, they need business insurance. To confirm, we checked with a local personal insurance agent. Their personal auto coverage specifically excludes using the vehicle while engaged in any business. It further restricts that snowplowing cannot even be done for free for someone other than the vehicle owner.

Liability Limits

Along with the certificate of insurance is limits of liability. In other words, how much coverage does the contractor have? For the work they are doing, is it enough to pay for any loss that they may cause? Let’s say the contractor is a roofer putting on a new roof. When they are done, the roof leaks and damages computer equipment. Do they have enough coverage to pay for the damage? Or consider a delivery service hired to deliver a product. While doing so, they cause a serious motor vehicle accident. Do they have enough coverage?

How much coverage is enough? The answer can vary. Consult with your insurance agent to review the work to be done or the service to be hired and determine the limits of liability that you should ask for. One rule of thumb is:

Additional Insured

A certificate of insurance alone does not guarantee coverage or that the policy will remain in effect. Someone could present their auto insurance card on Monday and cancel the policy on Tuesday. Therefore, at a minimum ask to be notified when the policy is being changed or canceled. More importantly, ask to be listed as an additional insured on the contractor’s policy. When listed as an additional insured, you will be notified if the policy is cancelled or lapses and it also provides a much better chance of recovery if a loss were to occur.

IF YOU HIRE A BUSINESS OR CONTRACTOR THAT DOESN’T HAVE CORRECT OR ADEQUATE INSURANCE COVERAGE AND THEY CAUSE A LOSS, YOUR BUSINESS COULD BE ON THE HOOK FOR ANY DAMAGE OR INJURY CAUSED!

Commercial general liability

Commercial auto liability

Property damage liability*

Umbrella

*When a vendor is delivering product(s) to your customers on your behalf, their certificate should show either a transportation floater or motor truck cargo coverage.

Limits of $1 million per occurrence and $2 million aggregate

At least $1 million combined single limit

At least $1 million

$5 million per occurrence/aggregate

3Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

Hold Harmless and Indemnification Agreements

Hold harmless and indemnification agreements are becoming increasingly important in business contracts. They are elements or clauses within a contract or agreement that can work to your business’s advantage, or they can just as easily work against your business. Hold harmless and indemnification are terms that are used interchangeably, but do not necessarily mean the same thing. As with many things, the devil is in the details – or in this case, the wording.

The Dangers of a Hold Harmless or Indemnification Agreement

When properly written, the intent of a hold harmless or indemnification agreement is to impose on one party the responsibility to pay all liability, damages, costs, expenses, and even attorney’s fees for the other party to the agreement. Even if it wasn’t your fault and the other party was at fault, you may still be obligated to pay damages.

Let’s plow some more snow. A snowplow contractor is hired to plow a parking lot and salt the sidewalks. In this example, the snowplow contractor produces what they call a “standard contract” with plow time and frequency. Both parties sign the agreement. Two months later, the snowplow hits a parked car while plowing the parking lot and causes $5,000 in damage. The irate car owner wants someone to pay for their car damage, a rental car, and lost wages from work. When the claim is sent to the snowplow contractor with the expectation that they will pay for the damage they caused, they refer to the signed contract which included a hold harmless and indemnification agreement that obligated the parking lot owner to pay for any damage done by the plow driver.

Too farfetched? Won’t happen? Did you read the contract before you signed it? All of it? Did you understand what you read? Did you have your legal counsel review it before you signed it? All too often, business owners sign contracts only to find out later that they are obligated to pay for costs that they were not aware of. Alternatively, they hire a service provider, technician, or contractor without a written contract, only to find out after a loss occurs that the contractor has no insurance or assets. What should a business owner do? Consider the following tips before signing any contract:

Don’t sign it without reading it – all of it. This point cannot be emphasized enough.

A qualified legal review of all contracts is essential. Even if a contract has been previously reviewed, do it again. Liability law can and will evolve over time.

Contact legal counsel if the contract appears to contain any form of a hold harmless or indemnification agreement, clause, or section, or if those words are used.

If legal counsel has objections to the contract language but you still want to sign the agreement, make sure you understand the consequences and your obligations if a loss were to occur. This often occurs when you are a subcontractor to another larger contractor. You should only be liable for what you do, not for what others do or control. Ask your legal counsel for alternative contract language that would be more favorable to you and ask the contractor if they will accept a modified agreement.

Actively seek legal advice and direction on contracts you are asked to sign. While there will be fees for this service, it will be considerably less than the litigation costs, property damage or bodily injury costs that a business could be obligated to pay if a claim occurs.

Hold Harmless and Indemnification as a Benefit

A business should use written contracts with hold harmless and indemnification agreements to its advantage. The days of handshake agreements are disappearing; they may be gone entirely. When hiring a contractor or service provider, or renting or sharing space within a building, only do so based on a written agreement. The agreement should contain as much detail as necessary to define what work is to occur, what service is to be provided, and how or when it is to be done.

All agreements or contracts should be drafted with the help of legal counsel. While sample contracts are available online, there is often a disclaimer at the bottom – a disclaimer is another term used to deny liability – saying that the website and sample creator are not responsible for errors, omissions or damages of any kind if you use the sample. This doesn’t mean the sample can’t be used to create a draft, but the draft should always be reviewed by legal counsel before it is implemented.

When drafting a contract or agreement, use language, as well as hold harmless and indemnification agreements, designed to protect your business.

Consider the following recommendations for your business contracts:

Require being named as an additional insured on the other contractor or service provider’s insurance policy. This is very important. It serves as a basis for your liability carrier to submit a claim against the other party’s insurance when it appears they caused the loss.

Require that a certificate of insurance must be provided before any work begins. A certificate will show the effective and ending dates of the coverage. Have a plan to track those dates to ensure the work by the contractor occurs within the coverage period and not after. If the project is delayed and coverage has expired when a loss occurs, your business is very likely responsible for any losses.

When renting out space in a building you own,

• Rental agreements should hold you harmless for any injury or loss of the renter or their customers that was not caused by you.

• Rental agreements should include a notice that the renter has to obtain their own insurance and that your insurance will not cover the renter’s property or liability.

• Renters should always be asked to provide a certificate of insurance to prove they have obtained their own coverage. Again, ask to be named as an additional insured.

4Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

THE DAYS OF HANDSHAKE AGREEMENTS ARE GONE. DRAFT WRITTEN AGREEMENTS WITH THE HELP OF LEGAL COUNSEL.

When a contractor is working on your site,

• The agreement should hold you harmless for any injury the contractor’s employees incur.

• The agreement should indemnify you for any action the contractor’s employees may bring against you.

• Contractor agreements should also indemnify you for any damage or injury caused by the contractor to your building, employees or customers.

When hiring a delivery service or even one driver with one truck,

• The delivery service should agree to hold you harmless from any claims arising out of their activities in delivering the product.

• The delivery company should agree to indemnify you for all damages, expenses, and attorney’s fees arising out of a claim against you based on the activities of their delivery service.

• The delivery company should certify that they and their drivers will comply with all federal, state and local licensing and motor vehicle laws, including all traffic laws.

• The delivery company should be required to keep all delivery vehicles licensed and reasonably maintained.

• Include a cargo liability provision stating that the delivery service will be liable for any damage to your product while in transport and until safely delivered to the destination.

Include an independent contractor provision stating that the delivery service or contractor being hired is an independent contractor and not an employee, agent, partner, joint venture or affiliate of your business. However, when hiring an independent contractor most state worker’s compensation laws prohibit a clause where you ask or require the contractor to waive their right to compensation. This is another reason why you should consult legal advice, obtain certificates of insurance, and be named as an additional insured on contracts. This is one less problem to worry about if a loss should occur.

Summary

Certificates of insurance, hold harmless and indemnification agreements are a complex subject; we have only scratched the surface. The information provided is not intended to give legal advice or take the place of a consultation with your insurance agent or legal counsel. It is intended to highlight the pitfalls of operating without written agreements, signing agreements without a legal review, or using poorly written agreements. While more information can be found in the online risk control library or blog at societyinsurance.com, always consult with your insurance agent and legal counsel, and even your insurance carrier, before entering into any contractual agreements.

Contributors to this whitepaper include: Mike Rosenau, Society Insurance Director of Risk Control; Terry Gill, Society Insurance Director of Commercial Underwriting; Heather Friedl, Society Insurance House Counsel; Bill Bunzel, Society Insurance Vice President of Property, Auto and Liability Claims; Jim Putzer, Society Insurance Workers Compensation Claims Manager; and Tim Hoffmann, Society Insurance Risk Control Technical Specialist.

5Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

6Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com 7Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

Sign on the dotted line: the importance of understanding service provider contractsThe Scenario

Picture this: an elderly couple wakes up on a cold morning in the middle of winter and they head out for breakfast. On their way, Lenny and Gertrude decide to swing by your business. They pull in and park their car. Lenny rushes out to open Gertrude’s door, as he has done thousands of times before. In his haste, poor Lenny doesn’t notice a small patch of ice on the ground and he slips, breaking his hip. Lenny doesn’t believe your business caused the fall and refuses to turn in a claim. However, his healthcare provider, knowing the incident occurred on your property, has gladly decided to pursue a claim on his behalf and begins sending threatening letters to your business.

Who is Liable?

As a claims professional, hundreds of claims cross my desk in a given year but no claim type matches the frequency and severity that comes with slips, trips and falls. Often times these falls occur as a result of snow and ice in a parking lot that is serviced by a contractor or as a result of rugs delivered by a linen provider. It’s only after a claim has occurred that a second thought is given to that contract you signed with a service provider that ended up stuffed into the bottom of a filing cabinet somewhere. The simple truth when it comes to liability is that those contracts do matter. They may not always be iron-clad but they can help or hurt your bottom line.

Indemnity Clause

The part of the contract that often has the largest impact on liability is referred to as the indemnity agreement or clause. Simply put, the term indemnity refers to a protection against a loss or other financial burden. As with any contract, the language of the indemnity clause is very important. For example, when does the obligation arise? Does it cover legal fees or just damages? What happens if more than one party is at fault? There is no exact formula to answer these questions. Oftentimes, the answers to these questions can be found after a careful reading of your service provider contract.

Read on for some examples of generic indemnity clauses.

By Bryce Gannon, Society Insurance Property, Auto, Liability Claims Representative with contributions by Heather Friedl, Society Insurance House Counsel

A typical indemnity clause might say:

“Contractor agrees to indemnify and hold harmless Owner of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, arising out of or relating to the work of Contractor.”

Clearly, this language seems to cover every possible type of potential loss, and even kicks in at the pre-litigation stage. It also covers attorneys’ fees and makes no accommodation for the possibility that someone else might also be responsible.

A narrower version of this clause might say:

“Contractor agrees to indemnify and hold harmless Owner of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, but only to the extent caused by, arising out of, or relating to the work of Contractor.”

This additional language suggests an apportionment of relative fault between the parties.

A provider may also cap their exposure. In that case, the indemnity clause might read:

“Contractor agrees to indemnify and hold harmless Owner of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, to the extent caused by or arising out of or relating to the work of Contractor. In no event shall the maximum liability hereunder exceed the sum of $_____.”

Summary

As you can see, the indemnity obligation in your contract could have immense financial repercussions, and should not be taken for granted. There is no “one size fits all” indemnity clause. Each one must be tailored to your specific situation and the laws of the jurisdiction in which you operate must be taken into account. It is important to read and understand what that clause provides, even if it is non-negotiable. By understanding your contract you enter the relationship with your eyes wide open, so when Lenny breaks his hip on your property, you know that the contract at the bottom of your filing cabinet is more than just a piece of paper.

THE SIMPLE TRUTH IS THAT CONTRACTS DO MATTER. THEY CAN HELP OR HURT YOUR BOTTOM LINE.

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8Society Insurance | P. 888.576.2438 | 150 Camelot Drive, P.O. Box 1029, Fond du Lac, WI 54936-1029 | societyinsurance.com

clearing confusion with snow removal agreementsCan we all agree that there is actually something comforting about looking out the window on a cold winter’s day and seeing a nice, new blanket of snow on the ground? Particularly if that snow is no longer on the sidewalks, parking lots or roadways?

If you are a business owner and you share this sentiment, you have probably thought through what is required for your business to attend to the needs of clearing the adjacent sidewalks and parking lots. You have done this to provide safe access to your building for your customers and employees.

If your solution to this matter included hiring a snow removal contractor, you have probably executed some sort of agreement for this service. This agreement likely included the level of service they will provide and how much it will cost. But, did the agreement also include language that makes it clear who will be responsible for an accident on the sidewalk or in the parking lot while the snow is being removed or after it has been removed?

If you are spending the money to have another party take on this responsibility at your business, you certainly wouldn’t want to be held solely accountable for their inability to properly clear your sidewalks or parking lots. While you might not be able to remove yourself from all accountability, with the right agreement in place you can certainly reduce your exposure.

Before the snow flies, why not take some time to attend to this matter? When the weather turns frightful, you can feel delightful knowing you are doing all you can to keep your customers, your employees, and your business safe.

By Terry Gill, Society Insurance Director of Commercial Underwriting

Visit bit.ly/snowagreement for an example of what an agreement could look like that is reasonable for both you and your snow removal contractor.