The Devil’s in the Details: Performing a Deep Dive into Client Contractual Agreements

Our mutual clients, whether they are community associations or in the habitational or hospitality industries, have multiple contractual agreements with third-party suppliers and vendors of various services. Each agreement contains provisions on who is responsible for what and by when, insurance requirements, and ultimate liability in the event of a loss, among other issues. It’s important to perform a deep dive into these agreements to understand the various potential risks involved in the work or services provided. Only then will clients secure the appropriate insurance programs and be adequately protected in multiparty operations.

In looking at an agreement, it’s critical to understand the scope of the contractual work provided. Even a small job can result in significant risk to the client. In vendor services contracts (whether for a building renovation, pool servicing, property maintenance, pest control, or landscaping, etc.), work with the client to properly assess the risk by asking the right questions. The insured should consider the qualifications of the contractor, the precise details of services, and the expected outcomes of each particular job. Often property owners/managers make assumptions regarding the quality of products or services they are expecting to receive from suppliers and/or vendors, which could end up being costly. If an insured is expecting first-class quality, it is critical that this is spelled out in the agreement. The standards of quality should be communicated and then delineated in the contract in sufficient detail to avoid disputes later on regarding the terms of the agreement.

Hold Harmless Agreements

Ensure your insureds’ agreements include indemnification clauses from their vendors. The contract should provide that the vendor or supplier agree to indemnify, defend, and hold the property owner, officers, employees and agents harmless against any acts or omissions of the vendor or supplier (including their employees and contractors) that directly or indirectly cause harm or damage to the property or anyone in, on or about the property, such as employees, guests/visitors, or other vendors.

Proof of Insurance

Verify the insurance coverage needed depending on the work being performed. Contractors working on renovations—for example, at a hotel or condo complex—should be required to carry a certain amount of contractors general liability and excess liability, contractors professional liability, contractors pollution liability, builder’s risk, and workers’ compensation insurance (including for subcontractors if they don’t have their own coverage). The contract should obligate the vendor/supplier to provide proof of insurance coverage via a certificate of insurance, to obtain sufficient amounts of coverage depending on the type of product or service offered by the vendor, to keep the insurance coverage current, and to aver that the insurance company will provide written notice of any lapse in coverage. The client should be named as an additional insured on the applicable insurance policies. As an additional named insured on the third-party vendor’s policies, a hotel, condo/community association, or property owner is provided greater rights and accessibility to the vendor’s coverage in the event of a covered loss.

Of course, the client should also have its own coverage because, as we know, large losses and subsequent litigation typically involve all parties associated with a particular job or service.

As an insured’s professional agent, you (and their attorney) serve as an extra pair of eyes in making sure that the provisions, terms, and conditions in third-party contractual agreements are clearly understood and that the proper insurance is in place to protect against potential losses.

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