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Read This Before You ( Sign Here )

Posted by Jeffrey Forbes on Jun 15, 2015 4:14:00 PM



A popular theme in a story- written or film- is that of a shady contract. One where the main character(s) don’t realize that they are signing their life away or entering into a lose-lose situation by not reading or understanding the fine print. From children’s movies like Willy Wonka & the Chocolate Factory to the very adult 50 Shades of Grey, the importance of reading the fine print and fully understanding the risks in a contract touches on a nerve that many of us fear- That we are going to be deceived and lose it all.

The Reality Of Contract Negotiations

Even in real life, negotiating contracts can be a tricky business. Those who aren’t paying attention can be caught with their pants down- so to speak. An issue many people do not pay enough attention to is the assignment of liabilities. Many contracts include clauses specifically assigning certain liabilities to the various parties, and these assignments must be outlined- in writing. Your insurer will also need to consent to any assignment of risk to the insured.

Contracts And Liability

For example, as part of most leases, tenants agree to assume certain liabilities regarding the property rented. For a company, leasing premises must pay close attention to the exact areas for which they are assuming liability. A specific example would be that these businesses must be aware to the extent they may be responsible for accidents that happen in parking lot. There are of course many other locations or situations that could cause serious problems for the business in the event of a claim.

Be Aware Of The Limits Of Your Insurance Policy

Problems can arise when companies assume contractual liability for areas or events that their insurance does not cover. Some insurance policies explicitly exclude coverage for liabilities assumed under contract. In any event, if a party agrees to be liable for something not covered by their insurance, that party will be the one who pays, not the insurance company.

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How To Avoid The Movie Cliché

  1. Businesses need to limit and control the people authorized to execute contracts on their behalf.
  2. These people need to be well-trained on problematic issues and taught how to spot possible problem areas that would be specific to the operations of the business.
  3. Consult with competent insurance professionals to help evaluate contracts and assure that you are not taking on unnecessary liabilities under the contract.
  4. If necessary, make adjustments to the contract or to insurance policies to avoid living a movie plot line and paying the price for inattentiveness.


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Topics: Liability, For Your Business, startup, Insurance Coverage, Risk Management