Delaware Business Insurance Update “ Contract Indemnifications And Work Comp Claims, What All Business Owners Need To Understand” 10-29-17

Every business will sign contracts with vendors or other companies to do business with them. Many of these contracts are signed with indemnifications. The business who lets the contract will require the business who wants to do business with them, to sign an indemnification. The clause usually says that the business will indemnify the other for claims that come out of the business dealings.  So now lets look at how a work comp claim can cause problems for businesses that indemnify other businesses. Here is the example: Company A signs a contract with Company B for a business project that can be very lucrative for Company A.  During the project a Company A employee gets hurt on the job. The  insurance company for Company A pays the comp claim and the employee gets back to work after some time. Then months later the employee files a lawsuit against Company B since the injury was during the project with Company B. Company B then tenders the lawsuit back to Company A because Company A agreed to indemnify Company B under the signed contract. So now Company A is having to defend a claim from it’s own employee. This is due to the contractual indemnification.  Company A will have to depend on it’s General Liability policy to cover the claim. Now it does not seem fair that Company A is paying for a claim twice, but that is what contractual indemnifications can do. Make sure you read and understand your contracts before signing. Always seek out Insurance and professional advice from your risk and legal counsels. Until next time be careful out there and know your risks.

G. Kevin Nemith. Area President, The Hilb Group of Maryland & CNC Insurance Associates
www.cncinsurance.com

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