INSURANCE: Are Your Business Partners Properly Insured?

Joseph Catanese

In today's world, how your business partners conduct their operations could be a liability and financially detrimental for your company. Therefore, inquiring whether a company has adequate insurance protection before you begin working with them makes good business sense.

In the waste industry, you may find yourself working with the private and public sectors, or with contractors hired to provide transportation, store or dispose of waste, or work on projects at your company's facilities. With these business relationships comes “vicarious liability.” In other words, a firm that hires a consultant or subcontractor could be held responsible for injuries, property damage or environmental hazards caused by the other firm. Because businesses can share liability, they also should share responsibility. Operators in the waste industry usually buy insurance coverage as a requirement in contracts with municipalities and other entities. In some cases, contracts will require specific liability limits, or types of coverage, such as environmental or pollution insurance or professional liability insurance. However, not every company you do business with has these kinds of insurance plans. Therefore, it's important to plan what would you do if an environmental incident occurred as a result of a contractor working at your facility.

If the contractor did not carry pollution coverage and your insurance plan did not cover a contractor's action, you might have an expensive incident and perhaps a serious business interruption on your hands.

It is increasingly common to request proof of specific insurance coverage, such as a pollution and remediation liability policy, when hiring a subcontractor. Usually, contracts outline the scope of work or service to be performed, pricing and other terms. But they also set ground rules on risk management, particularly outlining specific insurance requirements and liability limits.

An added safeguard is to be named as an “additional insured” on your business partner's policy during contract negotiations. This is another way to share the risks of the business arrangement or a specific project. A client also can be added to your policy to gain additional coverage on a service that you were hired to provide.

But the “additional insured” concept is not without its own risks. The premise of an additional insured is to protect a client or subcontractor from vicarious liability arising from the primary insured's actions. These endorsements, however, have been broadly interpreted and, in certain cases, have given the additional insured broader coverage than the primary policyholder. While this might be helpful if you have been added to someone else's policy, it might prove complicated if you have added another business to your own.

Significant numbers of problems also can arise with liability limits and the deductible — which affect all the people who are insured by the policy. The policy's deductible and how it is paid when a claim occurs may be other points of contention as well. These are issues to discuss at contract time.

In the end, it is important to enter into a business relationship prepared to ask whether insurance protection is there for those who need it.

For more information about insurance, visit www.wasteage.com.