The Importance of Insurance

When people hear the term “insurance,” they automatically assume that it is some form of coverage broadly defined in general terms. What many do not realize is that insurance is so much more than simple coverage for accidents and other unforeseen events, and being properly insured is an important aspect of doing business.

Insurance should perform a very crucial function: to protect a person or business entering into a transaction. One cannot always shift risk and responsibility to another party in the transaction.

The type and amount of insurance necessary is critical. Those who may have insurance may not be covered for what is actually needed, and those who have the proper type may not have enough to cover the potential damages one is exposed to in a business transaction. The specifics are dangerous traps, and many do not read between the lines where they should.

For instance, I have a Clinical Research client I formed in 2008. Clinical Research Organizations (CROs) assist in the testing of experimental drugs from conception through FDA approval.Once the company was up and running, they spoke with a broker who obtained an insurance policy.Six months later, they asked me to evaluate whether they were property covered for their particular line of work.

They were not.

The broker had simply procured them a medical malpractice policy, even though a CRO does not practice medicine. There was a specific exclusion in the policy precluding testing for administration of drug trials, which is exactly what a CRO does.

For six months they were operating with no insurance protection. I was able to put the client in touch with a qualified broker and obtain a full refund of the premium they had paid for the useless coverage. Legal advice regarding the adequacy of insurance is critical.

I have another client who contracted with a tile contractor who worked on condominiums for six full years before realizing that the insurance company had included a condominium exclusion that the contractor was unaware of. Unfortunately, the exclusion was discovered too late and my client and the tile subcontractor incurred substantial unanticipated costs due to the exclusion. Although the condominium exclusion was never blatantly stated, it was clearly within the policy and no coverage was provided.

The bottom line is, if you want protection during your transactions, you need to have the right insurance. And to get the right insurance, legal advice regarding the adequacy and sufficiency of insurance is critical.

Business Attorneys Are a Form of Indemnification

How many times do you agree to a company’s terms of service or sign an agreement without actually reading what you’re signing? While you may be willing to simply click the button and agree to the terms of service to create your account with Amazon and watch that movie you’re anxious to stream, the same attitude can cost your business more than you could imagine.

One of the most important aspects of owning your own business is protecting yourself from damages caused by other people. An experienced business attorney can help you protect your business and assets, creating a shield through carefully constructed language.

Let’s say you own a hotel and you’re having a contractor come in to do some work on the lobby and the contractor’s ladder falls, taking out a chandelier and injuring a guest. The contractor would be responsible for the damages, right?

That all depends on what kind of indemnification clause you agreed to in the contract you signed. I don't know how many times I have had clients come to me with contracts they’d signed without reading or understanding them, leaving them open to significant loss caused by the negligible hands of others.

In the hotel example, let’s say the contractor’s contract indemnified him, his employees and his company so that any damage done by his crew was the responsibility of the hotel. A contract constructed this way basically gave the contractor a get out jail free card with the hotel. The hotel would not only be responsible for the damages but liable for any civil suit brought by the guest. Without proper indemnification, you can be liable not only for the damage caused by the contractor, but also medical bills and other provisions if anyone is injured.

Properly constructed contracts that provide clearly spelled out indemnification protect you and your business from other people's mistakes. I recently negotiated a very favorable contract for a company that leases trucks for film productions. The contract is worded in such a way that if anything happens to that vehicle that is not the sole fault of my client, the film company pays 100 percent of the damages.

Should the film company that negotiated the lease with my client have negotiated for better terms? Yes. Did they? No. I was able to get a very positive provision in my client’s contract that shields his company from risk. Indemnification and contract negotiation require the skill of an experienced attorney. It's important as a business owner to make sure your rights and interests are properly represented and protected.

The law is a complex animal, and too often people try to take on legal contracts and negotiations themselves without the help of lawyers. This leaves them open to costly mistakes and manipulation by others who have the legal knowledge. Indemnification is only one aspect of contract negotiation, but it is an important one. Think twice before creating a contract yourself (or signing one you don’t understand), because it could lead to significant costs down the line.