Presenting a live 90-minute webinar with interactive Q&A Insurance Requirement Clauses in Commercial Contracts: Mitigating Risk, Maximizing Coverage, Interplay With Indemnification THURSDAY, DECEMBER 1, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Damian J. Arguello, Partner, Levin Sitcoff , Denver Joseph G. Balice, Partner, Brutzkus Gubner Rozansky Seror Weber , Woodland Hills , Calif. Katie Pfeifer, Of Counsel, Dorsey & Whitney , Minneapolis The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Drafting Insurance Requirement Provisions In Commercial Contracts Part I: Determining The Type And Amount of Insurance Coverage Joseph G. Balice Brutzkus Gubner jbalice@brutzkusgubner.com
Disclaimer The views expressed by the participants in this program are not those of the participants’ employers, their clients, or any other organization. The opinions expressed do not constitute legal advice, or risk management advice. The views discussed are for educational purposes only, and provided only for use during this session. 6
As a partner in the commercial civil litigation team at Brutzkus Gubner Rozansky Seror Weber LLP in Los Angeles, Joe’s core practice is representing policyholders when insurance company carriers deny claims. He has worked on virtually all lines of commercial and professional insurance (CGL, D&O, E&O, EPLI, property, crime, etc.), and has personally helped clients collectively recover over $400 million in insurance policy benefits throughout his career. http://www.brutzkusgubner.com/our- professionals/joseph-g-balice jbalice@brutzkusgubner.com 7
Insurance Requirement Clauses ◦ What Are They? A provision in a contract requiring one of the parties to buy insurance to cover risk associated with the transaction Two Varieties: ◦ Party Must Buy Insurance Covering Itself ◦ Party Must Buy Insurance Covering Others 8
Why Do We Care? ◦ Risk Management Decreasing Risk Of Peril Shifting Financial Consequences of Peril ◦ Financial Resources For Obligations/Liabilities Show Me The Money 9
Two Strategic Concerns ◦ Drafting How do we write provisions that protect us? ◦ Enforcement How do get the most of our contract rights? 10
Proactive vs. Retroactive Enforcement ◦ Enforce compliance or recover damages? ◦ Purpose Of Provision: Ensure Financial Resources ◦ Failure To Comply: Breach of Contract Claim ◦ Breach Claim Only As Valuable As Contracting Party’s Financial Resources This Is Why You Required They Get Insurance In the First Place Insurance Requirement Clauses Are Useful If Proactively Enforced 11
What To Include: ◦ Lines of Insurance ◦ Who is Covered? ◦ Limits of Liability – How Much Coverage? ◦ Carrier Rating ◦ Right To Receive Coverage Documents, Carrier Notices ◦ Other Essential Terms of Coverage Enforcement Tip: Specificity in drafting facilitates a clearer path to recovery for breach and enforcement. 12
How Do We Know What To Require: Two Step Process: ◦ Identify Risks Associated With The Transaction ◦ Identify The Insurance Products Available To Cover Those Risks Call The Brokers: This Is What They Do. 13
What Lines of Coverage To Get, Part 1: ◦ Commercial General Liability ◦ Property ◦ Workers’ Compensation ◦ Automobile Liability 14
What Lines Of Coverage To Get, Part 2 ◦ Fidelity Bond/Crime Coverage ◦ Errors & Omissions Liability ◦ Directors & Officers Liability ◦ Employment Practices Liability 15
What Lines Of Coverage To Get, Part 3 ◦ Cyber Risk Coverage ◦ Intellectual Property ◦ Key Person Insurance 16
Evolving Risks ◦ Risk Over Life of Transaction Not Static ◦ Risks Can Change In Both Nature and Scope ◦ Long Term Contract Without Provisions To Revisit Insurance Requirements Dangerous 17
Coverage Reviews ◦ The Right To Review The Coverage Requirements Under The Contract And Request Changes All Requirements Subject To Review: Lines of Coverage, Limits, Terms, Etc. Right To Demand Reasonable Changes To Coverage ◦ Regularly Scheduled/As Reasonably Necessary 18
DRAFTING INSURANCE REQUIREMENT PROVISIONS IN COMMERCIAL CONTRACTS – ADDITIONAL INSURED COVERAGE December 1, 2016 Damian J. Arguello 1512 Larimer Street, Ste. 650 Denver, CO 80202 303-575-9390 dja@levinsitcoff.com
Speaker’s Bio Damian Arguello is an insurance coverage attorney at the policyholder insurance coverage boutique Levin Sitcoff PC. Damian dedicates his practice to representing policyholders concerning risk management and insurance coverage matters, including coverage disputes and prospective coverage advising. He formerly was a partner at the venerable Colorado law firm of Davis Graham & Stubbs LLP. Before law school, Damian was the claims manager and errors & omissions coordinator for Talbot Agency, a national insurance brokerage, where he mediated coverage disputes between policyholders and insurers, and also led the brokerage’s internal risk management program. Prior to that, Damian was multi-line claims adjuster for Crawford & Company and CNA Insurance Companies. 20
What Is Additional Insured Coverage? • Form of contractual risk transfer • Require the other, “subordinate” party to a contract to name the requesting party as an additional insured under the subordinate party’s insurance • Force the subordinate party’s insurer to bear the primary risk of loss • Preserve the requesting party’s insurance and reduce insurance costs 21
What Is Additional Insured Coverage? • Problems for the subordinate party: • It could be insuring the requesting party’s sole negligence • The claims insured could be only tangentially connected to the subordinate party’s operations, resulting in a disproportionate risk transfer • Dilution of the subordinate party’s limits • Increased insurance costs 22
Required Insurance vs. Additional Insured Coverage • Merely requiring a subordinate party to carry insurance does not automatically equate to additional insured coverage • Language unequivocally requiring additional insured coverage is usually necessary • Certain policies are not amenable to additional insured coverage • Professional liability • Workers compensation • Alternate employer endorsement 23
Additional Insured Coverage vs. Coverage for Indemnity Obligations • Contrary to popular belief, CGL does not exclude contractual liability (not entirely) • Standard ISO form provides limited “give - back” coverage for named insured’s assumption of another’s tort liability in an “insured contract” • Indemnitee becomes another claimant under policy, indemnification coverage subject to limits • No direct rights as an “insured” • Defense could be in addition to limits if numerous conditions met 24
Additional Insured Coverage vs. Coverage for Indemnity Obligations • Additional insured gets direct policy rights as an insured under the policy • Right to defense in addition to limits (most policies) • Separation of insureds clause – policy applies to each insured separately – coverage for cross-liability • Get own separate counsel • Insurer owes duties to additional insured, including duty of good faith and fair dealing • Fewer conditions to meet to reap defense and indemnity benefits 25
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