Using Contracts to Protect Your Business

A business should use written contracts with hold harmless and indemnification agreements to its advantage. The days of handshake agreements are disappearing; they may be gone entirely. When hiring a contractor or service provider, or renting or sharing space within a building, only do so based on a written agreement. The agreement should contain as much detail as necessary to define what work is to occur, what service is to be provided, and how or when it is to be done.

All agreements or contracts should be drafted with the help of legal counsel. While sample contracts are available online, there is often a disclaimer at the bottom — a disclaimer is another term used to deny liability — saying that the website and sample creator are not responsible for errors, omissions or damages of any kind if you use the sample. This doesn’t mean the sample can’t be used to create a draft, but the draft should always be reviewed by legal counsel before it is implemented.

When drafting a contract or agreement, use language, as well as hold harmless and indemnification agreements, designed to protect your business.

Hold Harmless and Indemnification Benefits

Consider the following recommendations for your business contracts:

  • Require being named as an additional insured on the other contractor or service provider’s insurance policy. This is very important. It serves as a basis for your liability carrier to submit a claim against the other party’s insurance when it appears they caused the loss.
  • Require that a certificate of insurance must be provided before any work begins. A certificate will show the effective and ending dates of the coverage. Have a plan to track those dates to ensure the work by the contractor occurs within the coverage period and not after. If the project is delayed and coverage has expired when a loss occurs, your business is very likely responsible for any losses.
  • When renting out space in a building you own,
    • business agreement handshakeRental agreements should hold you harmless for any injury or loss of the renter or their customers that was not caused by you.
    • Rental agreements should include a notice that the renter has to obtain their own insurance and that your insurance will not cover the renter’s property or liability.
    • Renters should always be asked to provide a certificate of insurance to prove they have obtained their own coverage. Again, ask to be named as an additional insured.
  • When a contractor is working on your site,
    • The agreement should hold you harmless for any injury the contractor’s employees incur.
    • The agreement should indemnify you for any action the contractor’s employees may bring against you.
    • Contractor agreements should also indemnify you for any damage or injury caused by the contractor to your building, employees or customers.
  • When hiring a delivery service or even one driver with one truck,
    • The delivery service should agree to hold you harmless from any claims arising out of their activities in delivering the product.
    • The delivery company should agree to indemnify you for all damages, expenses, and attorney’s fees arising out of a claim against you based on the activities of their delivery service.
    • The delivery company should certify that they and their drivers will comply with all federal, state and local licensing and motor vehicle laws, including all traffic laws.
    • The delivery company should be required to keep all delivery vehicles licenses and reasonably maintained.
    • Include a cargo liability provision stating that the delivery service will be liable for any damage to your product while in transport and until safely delivered to the destination.
  • Include an independent contractor provision stating that the delivery service or contractor being hired is an independent contractor and not an employee, agent, partner, joint venture or affiliate of your business. However, when hiring an independent contractor most state worker’s compensation laws prohibit a clause where you ask or require the contractor to waive their right to compensation. This is another reason why you should consult legal advice, obtain certificates of insurance, and be named as an additional insured on contracts. This is one less problem to worry about it a loss should occur.

Other Business Contract Resources

Looking for more information on using contracts to protect your business, including certificates of insurance, liability limits and the dangers of hold harmless and indemnification? Don’t miss this whitepaper:

Business contracts are a complex subject. Always consult with your insurance agent and legal counsel, and even your insurance carrier, before entering into any contractual agreements.

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