Belt and Suspenders Risk Management for Not Getting Caught with Your Pants Down Drafting Enforceable and Effective Indemnity and Insurance Requirements Provisions
H
ave you ever seen a person who wears a belt and a pair of suspenders? Isn’t that overkill for keeping your pants up? Depending on the person, maybe not. The same can be said for the ever-evolving yoke of insurance policies to contractual provisions in leases and contracts. This article analyzes both and provides practical recommendations for practitioners in the real property, trust, and estate areas. Which Goes on First—the Belt or the Suspenders? Most organizations and trusts (and individuals) purchase insurance as the primary source of risk management protection. In short, an insurance policy is a contractual transfer of risk from one party (the insured) to another party (the insurer) for a negotiated insurance premium. Such policies are an integral part of virtually all organizations, including Michael S. Hale is President of Clairmont Advisors, LLC, Managing Director and General Counsel of 360 Risk Management, Inc., and President of the Law Offices of Michael S. Hale & Associates, PLC, in Northville, Michigan.
coverage for liability for claims of bodily injury, death, property damage, and other torts like wrongful entry or eviction, discrimination, invasion of privacy, wrongful advertising, mismanagement by directors and officers, intellectual property liability, employment practices liability, and new and emerging areas such as cyber liability. Despite the front row seat insurance policies often occupy in overall risk management, most insurance buyers give short shrift to the insurance buying process, assuming mistakenly that all policies are fungible commodities like soap and attempting to compare quotes for policies “apples to apples.” This is misguided, as most insurers, even where they use standardized forms such as those from the Insurance Services Office (ISO), often modify the policies through endorsements to address the risks the insurer is willing to assume. This has striking similarity to how indemnification and hold-harmless provisions are drafted and interpreted. The Belt: The Insurance Policy Below are some practical suggestions on transferring risk through the purchase of insurance policies that are based upon
the author’s experience. Commercial property insurance and waivers of subrogation. These policies cover loss of a property owner or other interested party, such as a mortgagee or lienholder of the owner. Such policies vary considerably and should be carefully reviewed with knowledgeable insurance counsel, as this area is an often-litigated area. Moreover, there has been much litigation against insurance agencies, underscoring the importance of being certain that your client has a good agent. Insurers generally write the policy as requested by the insurance agents and may not otherwise include coverage enhancements where not requested. Further, when insurers pay claims, they have contractual subrogation rights to stand in the shoes of the insured to pursue any tortfeasor who may have caused the loss. This puts an emphasis on drafting appropriate waivers of subrogation in leases and contracts. Triple net leases and property insurance. Creating significant insurance and risk management issues are situations in which one party (such as a landlord) allows another party (such as a tenant) to insure its building--such as in triple net
Published in Probate & Property, Volume 36, No 4 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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July/August 2022
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By Michael S. Hale
