Product Liability Risk Transfer Techniques: Certificates Of Insurance, Waivers of Subrogation, Hold Harmless Agreements

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Product Liability Risk Transfer Techniques: Certificates of Insurance, Waivers Of Subrogation, Hold Harmless Agreements

Introduction

In many instances, the liability from failure of a component in a manufacturer's product is far from clear. Questions of liability also arise when a subcontractor installs your product or performs any services on your behalf, or when a contractor's employee is injured in your workplace. One way to avoid such confusion and your assuming unintended liability is to employ a strategy where your suppliers, contractors, and subcontractors agree to assume the risk or indemnify you.

Adequate insurance of the other party, verified by Certificates of Insurance, along with Waivers of Subrogation and Hold Harmless Agreements are important assurances. These guidelines are meant to assist you in applying each of these risk transfer techniques- These guidelines are not however, an appropriate substitute for adequate insurance or loss prevention on your part.

Certificates of Insurance

To minimize liability arising out of the work of contractors or subcontractors or a suppliers component part, begin by ensuring that the other-party carries General Liability, Product Liability, and Workers’ Compensation insurance. A Certificate of Insurance is a document attesting to the existence and limits of coverage on the other party. Issued to you by the other party's insurer, Certificates of Insurance also allow you to receive notification of lapse of coverage. Check to be sure that:

- The Policy is in force and issued by a reputable domestic insurer

- The policy covers Comprehensive General Liability; Product Liability, and Workers' Compensation

- The policy limits are equal to or greater than your own

- You are named as the Certificate holder


Waivers of Subrogation

Even if each of your vendors, contractors, or subcontractors is insured adequately, their insurers have a right to seek subrogation (i.e., to recover some or all of their costs) from you if they believe you were at fault or that you caused the event that gave rise to the claim. Obviously, this can result in significant legal actions and blaming between parties.

To avoid such actions, you would need to have a waiver of subrogation from the other party's insurer prior to any loss. The waiver of subrogation is an endorsement to the insurance policy issued to the other party. Remember these important points about waivers of subrogation:

• A waiver should be general and encompass all hazards, locations and operations for which the other party is responsible in their work for you

• A waiver should not contain limitations as to the specific entities, locations, or work; it should cover all operations conducted by the other party for you

• A waiver should not contain clauses requiring the consent of the named insured (the other party) for the waiver to be applicable

• A waiver is necessary even if no specific clause in the policy of the other party expressly permits subrogation.

Hold Harmless Agreements

To maximize your protection, you may wish to seek a Hold Harmless Agreement from your vendor, contractor, or subcontractor. This agreement is a legally binding contract by which the other party agrees to hold you harmless for any liability arising out of their work, including liability for claims that would not be covered by insurance (e.g., costs of recall). Note in particular that these agreements even cover situations where you are solely negligent. Remember these important points about hold harmless agreements:

• Hold harmless agreements must be in writing and must clearly state the indemnifying party's (the other party's) responsibility to indemnify you against liability or loss or damage.

• If a corporation signs the agreement, the authority of the person signing should be apparent (e.g., vice-president). Most corporate bylaws permit a vice-president to contractually bind the corporation. The same may not be true for corporate secretaries, treasurers, managers, etc.

• The preferred form of Indemnity Agreement is one that indemnifies against liability, since it does not require that actual damages be shown before the agreement operates. For this reason, Indemnity agreements that indemnify against "liability" are preferred and should go so far as to require the indemnitor to "defend against suits/actions" and should also include legal fees and costs incurred by the indemnitee (you) in their own defense of the claim or suit.

• The agreement should not have a term or be cancelable without sufficient notice.

• There should be no limitations on the amount of time in which to make a claim.

• There should be no limitations on the amount of the indemnitor's liability.

• The agreement should state specifically that the indemnification is provided for your own negligence.


© 2002 The Hartford Loss Control Department