By Cary Evans, JD, MPP, CCIC, AIDA™, STS®
Transferring risk and indemnity are only effective when they are properly structured, enforceable, and backed by insurance. Many organizations rely heavily on indemnification provisions, but that alone is rarely sufficient.
Key elements of strong contractual risk transfer include:
- Clear indemnification language: Define who is responsible for what, and under which circumstances.
- Insurance requirements: Require counterparties to carry appropriate limits and coverages aligned to the exposure.
- Additional insured status: Ensure your organization is added to the other party’s liability policies where appropriate.
- Primary and non-contributory wording: Clarifies that the counterparty’s insurance responds first.
- Alignment between contract and policy wording: Misalignment is one of the most common causes of coverage disputes.
Even well-written agreements can fail if they are not supported by enforceable insurance provisions or if required documentation (e.g., endorsements, certificates) is not properly validated.
Best practice:
Treat contract language and insurance verification as a combined control, not separate exercises. Effective transfer happens when both are working together.