Check third party Terms and Conditions
Companies are increasingly placing financial limits on liability for loss and damage in their Terms and Conditions, commonly implemented as flat financial limits or up to the value of their contract price. The reason this practice is becoming more and more common is that it off loads risk from the business and their insurers onto you, saving money and theoretically lowering their insurance costs.
This can have serious implications for you and your insurer, to find out how, and what you can do to prevent this happening.
How third-party Terms and Conditions could affect your insurance position.
There is a trend that is becoming increasingly popular amongst businesses when it comes to designing third-party Terms and Conditions. What we are seeing that a growing number of companies are placing financial limits on liability for loss and damages in their Terms and Conditions, areas that are usually covered by their own Public/Products liability and Professional Indemnity Insurance. These are usually implemented as flat financial limits or limits up to the value of the contract price.
With organisations making these changes despite already being covered by their insurance, many will be wondering why these additions to Terms and Conditions are being made. The reason for this is that it allows firms to offload any risk faced by them and their insurers and put it onto the other party, saving the business money and theoretically lowering their insurance costs.
However, while this has benefits for the organisation creating the contract, it can have serious consequences for those that agree to the new terms.
If agreeing to financial limits on liability for loss and damages, businesses and individuals are under an obligation to inform insurers that they have agreed to contractually restrict or give away their and their insurers rights of recovery against people they do business with.
This means that where organisations and individuals engage with sub-contractors, their own insurance will almost certainly be subject to them checking on the sub-contractor’s liability insurance with a specification that it is of a minimum value. If they fail to do this, it could prejudice their right to claim under their own policy. They will have to ask for the sub-contractor insurance details, who will produce a letter, usually written by their broker, setting out their Liability and other cover. This could look fine and meeting all requirements, however, what the letter will not say is that their Terms and Conditions contain financial limits, restricting insurer’s ability to a claim against them.
All this can have serious consequences in the event of a loss. We advise, regardless of what industry or organisation an individual or business is working in, that they always check the insurance details of organisations they are doing business with and insist on a copy of their Terms and Conditions when tendering. This will mean that restrictions can be highlighted an early stage and be addressed before any obligations are agreed.