Are your suppliers and vendors properly insured before they deliver products to you or their employees visit your premises? Are you sure you have limited your company’s liability as much as possible when you sell, use or distribute these products? What kinds of insurance should you require and what documentation is needed to accomplish these goals?
First, consult with your attorney to review your current vendor/supplier agreements or draft new ones. Many of the issues involved in this question require drafting an agreement that protects you with indemnification or hold-harmless and waiver of subrogation provisions, as well as requiring specific types of insurance the vendor/supplier must carry before they can do business with you. In addition, a properly-drafted agreement will indicate what the vendor/supplier must furnish to you as evidence that they are complying with the indemnification and insurance requirements. This is typically accomplished by requiring a Certificate of Insurance from their insurance company or agent. Your agent will be happy to discuss these requirements with your attorney.
Here are some specific points you and your attorney should consider.
Commercial General Liability Insurance
The supplier/vendor should already be covered by a Commercial General Liability (CGL) insurance policy. This type of policy protects them in case of an accident involving their premises, operations and products. Your agreement should require evidence that this policy provides the following:
- Limits of Liability. Limits of $1,000,000 per occurrence and $2,000,000 aggregate are common limits carried on CGL policies. These should be the minimum limits you require.
- Your Company as Additional Insured. Adding your company as an additional insured to the supplier/vendor’s CGL policy normally requires a special endorsement to the policy. There are different kinds of additional insured endorsements, so you should specify what kinds you require.
- Waiver of Subrogation. If an employee of the vendor/supplier injures someone or damages property while delivering product to your premises, you want to be sure the vendor/supplier’s insurance company can’t sue you to recover any amounts they pay to settle the claim. Your agreement should require a “waiver of subrogation” to prevent this from happening and the vendor/supplier should provide evidence that their insurance company has agreed to the waiver.
- Contractual Liability. In most cases, the CGL policy carried by the vendor/supplier covers the indemnification or hold harmless provision in your agreement, but you want to be sure the insurance company has not restricted the coverage in an unacceptable way. Your agreement with the vendor/supplier should clearly state that such modifications are not acceptable.
Automobile Liability Insurance
You want to be sure the vendor/supplier is adequately protected for accidents involving their vehicles while delivering products to you. The liability coverage on their auto policy covers your company as an additional insured automatically. You should require evidence of auto liability with a minimum limit of $1,000,000.
If an employee of the vendor/supplier is injured while delivering product to your premises, you want to be sure the supplier/vendor carries workers compensation insurance to cover the employee’s medical bills and lost wages. The employee is much less likely to sue your company if he or she is compensated by workers compensation insurance. In addition, you want to be sure the vendor/supplier’s insurance company can’t sue you to recover any amounts they pay to settle the claim. Your agreement should require a “waiver of subrogation” on the workers compensation policy to prevent this from happening and the vendor/supplier should provide evidence that their insurance company has agreed to the waiver.
Certificates of Insurance
What kind of evidence should you require to be sure the vendor/supplier has the insurance required by your agreement? The typical document is a “Certificate of Insurance.” Your agreement should require the vendor/supplier to furnish a Certificate of Insurance prior to commencing work for your company AND again when submitting an invoice for payment.
This article was prepared and made available to your agent by the Independent Insurance Agents of Texas, which is solely responsible for its content. Please read your insurance policy. If there is any conflict between the information in this article and the actual terms and conditions of your policy, the terms and conditions of your policy will apply. The Independent Insurance Agents of Texas is a non-profit association of more than 1,500 insurance agencies in Texas, dedicated to helping its members succeed, in part by providing technical resources that explain insurance policies sold to their customers.
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