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By Gene McKeever, CIC

The fine print. The phrases and clauses in contracts which can get you into trouble, especially if you don’t understand them all. Read them carefully, and ask someone else to read them for you, too, namely your insurance agent. Why? Read on.

“Hold harmless.” The wording is usually fairly standard and it reads to this effect: “you promise to hold and save harmless ABC Corp from any and all claims, suits or demands brought by anybody.” What is this? It means no matter what the claim (it may be a claim for lost rent or a disputed billing). Do you really want to honor that? Of course not. Will your insurance company defend you for “any and all” claims? Of course not. I usually add a few words and take away others. It comes out this way: “you promise to hold and save harmless ABC Corp. from any and all claims covered by insurance brought in connection with your work under this contract.” I also ask my client to demand the same wording for himself, ensuring the contract is reciprocal to both parties. This is a fairly simple change and it is usually greeted well by the other party. If not, I usually ask that the other party’s lawyer call me, and we hash it out.

“Waive subrogation.” I’m not a fan of this and most of the insurance companies I deal with will not honor this request or they will ask for more insurance premium if a subrogation waiver is in place. A waiver of subrogation basically prevents your insurance company from collecting against the other party if they were the negligent party in an accident. This is another clause where I’ll ask the other party to make it reciprocal so both parties are treated the same. Subrogation means, in a legal sense, one party has the right to “step into the shoes” of another party for the purposes of bringing a claim for damages. Not all types of claims may be subrogated. The most common type that can be subrogated is property damage claim

“Additional insured.” This one really grinds my gears. This clause essentially cuts my client’s limit of liability in half if each party were named in a suit because my client is sharing his limits with the other party. I don’t see the logic of the other party because by being an additional insured on my client’s policy they preclude themselves from ever making a claim on my client’s policy. One insured can’t collect from another on the same incident and policy. Because the insurance limit is also effectively split, the additional insured request usually makes my client’s minimum liability limit less than what was demanded by the other party in the first place.

I have argued this clause with many legal departments over the years and have mostly prevailed in favor of my client using the splitting of minimum limits argument. The only other way that I will find acceptance of this clause is if both parties agree to make the additional insured demand reciprocal but even then I’m not totally comfortable with it. Insurance companies don’t like this contract clause either because it means they are barred from any subrogation claims that may appear.

Finally, please remember it’s important to share your contract language with your insurer (through your agent) because contract clauses affect your insurance coverage. Put the onus on your agent and insurance company to keep your policy in line with your actions.

Gene McKeever is a marine insurance specialist at Allen Insurance and Financial. email hidden; JavaScript is required

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