Certain provisions of an agreement may seem like boilerplate, but one shouldn’t be skimming insurance provisions. Since a not-for-profit organization may find itself liable for the actions of its service providers, it is important that the organization ensure, in advance, that it is adequately insured for such liabilities. I asked my insurance colleague Kelly Morris some general questions to help not-for-profit organizations better understand insurance provisions in agreements provided by service providers.
Question: What is the first thing an organization should consider when reviewing insurance provisions in an agreement from a service provider?
Kelly: An organization should consider whether the agreement requires that the service provider maintain insurance coverage that is usual, both in terms of type of coverage and amount, for their industry during the term of the agreement, and whether the agreement requires that the service provider or the insurer advise the non-profit organization of any changes or termination of such insurance coverage.
Question: How does an organization determine the appropriate type of insurance and limits required?
Kelly: An organization should consult with its insurance broker to determine the appropriate types of insurance and required limits. The organization’s legal advisors should review the policy before it is issued to ensure that the policy terms are appropriate and that there are no unusual limitations or exclusions.
Question: Sometimes insurance provisions refer to “additional named insured”. What does it mean?
Kelly: An “additional named insured” is someone other than the first person named as insured under the policy. Such a person is also named as an insured person under the policy, and has the same rights as the first person named as insured. For example, the service provider would be the first person named as insured and the non-profit organization would be the additional named insured. Sometimes this person or entity has been added as an insured under the policy after the policy is written.
Question: Should an organization always ask its service providers to add the organization on the provider’s insurance as an “additional named insured”?
Kelly: It depends on the facts. Generally, an organization would ask to be added as an “additional named insured” when the organization is concerned that it may be liable for activities performed by the service provider and wants to ensure that the service provider’s insurance will cover such liabilities. For example, if a non-profit organization was hosting a fundraiser at which there was going to be a bouncy castle for children, it might be concerned that it might be the subject of a claim if a child was injured. The non-profit organization might therefore request that it be an additional named insured on the commercial general liability insurance coverage of the bouncy castle provider with respect to the fundraiser. In some cases, where an organization is not concerned that it might be the subject of an insurance claim as a result of the service provider’s actions, the organization might be satisfied if the service provider proves it has sufficient insurance in its own name to cover any potential liability.
Question: How long should the insurance obligations be imposed upon the service provider?
Kelly: The insurance obligations of the service provider should be tied to the length of any potential claims against the service provider or the non-profit organization as a result of the service provider’s activities. Your insurance broker or lawyer can provide you with more specific information based on the specific facts and whether the insurance held by the service provider is “claims-made” or “occurrence-based”.
There are other aspects to consider when reviewing insurance provisions. We recommend that organizations review these provisions with their insurance brokers and legal advisors with respect to the specific fact scenario.