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Take care when signing Contracts!

Jan 19, 2016

Author – Daneille Crawford, Head of Client Services.

Many contracts contain provisions that can expose your business to potentially uninsured liabilities.

The most common types of clauses that can have this effect are:

Indemnity or hold harmless clauses that make one party responsible for any loss or damage suffered by the other party, or someone else, regardless of fault

  • Exclusion clauses, where one party excludes its liability to the other party, even where it has been negligent or breached the contract
  • Releases – where one party releases the other from any claims it might otherwise have.

Here is an example of an indemnity clause:

The Contractor shall indemnify the Company and its employees and/or agents against all losses, damages, claims, in respect of the injury of or death of any person arising from or directly or indirectly connected to the services provided by the Contractor whether or not the negligence, default, breach of duty or otherwise of the Company and/or an employee or agent of the Company has caused or contributed in any way to the injury or death

Such a clause seeks to make the contractor liable for any injuries to any person, even if those injuries have been caused by the negligence of the company it is contracting with.   All that is required is some connection between the injuries and the services being provided by the contractor.

Most insurance policies contain exclusion clauses that limit cover in circumstances where an insured, by signing a contract, takes on obligations or liabilities that it would not otherwise have had. These clauses are usually along the lines of:

This policy does not cover liability assumed under any contract or agreement.   This exclusion does not apply to any liability that would have been implied by law in the absence of such contract or agreement.

Before you sign any agreement, you need to ensure that you are not taking on liabilities that could cripple your business and leave you uninsured in the event of a claim.   It is essential that you obtain legal advice about any contract you propose to sign, and that you ensure that you are not jeopardizing your business by taking on contractual liabilities that may not be covered by your insurance policies.

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