Professional Services Contracts – Before you sign the dotted line
Insurance does not respond to every loss, liability, damage or compensation claim and there are often gaps between the cover provided under an insurance policy and your liability under a contract.
It is prudent to seek both legal and insurance advice before signing a contract or agreement. Your insurance broker can provide advice relating to the insurance cover arranged on your behalf, however, it is important to get advice on all aspects of the contract including general indemnities, release and hold harmless clauses – these clauses can increase your exposure, not your insurer’s exposure.
Indemnity and ‘hold harmless’ clauses shift contractual and legal responsibility from one party to another – this can be different to the liability each party would normally have at Common Law and results in one party assuming more than their actual legal responsibility.
These clauses can vary considerably from contract to contract. Some will simply state that certain policies must be in place, what sum insured/limit of indemnity is required and for what period of time the policies must be maintained. Others may stipulate what cover should be provided by a policy.
Contracts that require you to indemnify the principal for all obligations should be amended, otherwise you could responsible for uninsured/uninsurable losses.
Professional Indemnity policies cover the person(s), partnership, company, corporation or entity named as the ‘Insured’ in the policy schedule. If you have formed a new entity for the purpose of entering into a contract to provide particular services, that entity will need to be included as a Named Insured under your policy.
In order to obtain cover for a Named Insured, insurers may want additional underwriting information prior to providing cover.
Sometimes the scope of services described in a professional services contract is different to the professional services or work covered by a policy.
The services that a professional agrees to provide under a contract is an important factor in determining the duty of care that applies to that professional and the extent of any damages that can be claimed for breach of contract.
You should ensure that the services you are providing and the professional services insured are aligned in order to avoid being left uninsured.
Certificates of Currency
Most contracts require you to produce a Certificate of Currency as evidence of insurance coverage. Providing a Certificate of Currency confirms that you have insurance in place. It does not necessarily mean that you satisfy the requirements of the insurance clauses in a contract. Your contract should be reviewed to identify any discrepancies between the insurance requirements and the cover under you policies – otherwise you could be exposed to uninsured losses.
This is general information and not tailored to individual circumstances.
For assistance with reviewing insurance clauses, a policy wording or an endorsement, contact your BJS Account Manager. You should also seek legal advice regarding any contractual liability issues.