Enhance your client’s railroad contractor risk management with carefully written contracts
Whether your railroad contractor insurance client is a contractor or subcontractor, the way their contracts are written can either expose them to risk or help them eliminate many risks. Share these tips on railroad contractor risk management with them, to help them minimize their business exposures.
And by the way – these best practices apply to all construction contractors, not just those who work with railways.
Your railroad contractor client is legally responsible for any action or inaction that directly leads to injury, property or economic damage. However, common, state and federal laws usually permit business associates to make contractual arrangements that deal with the financial burden of losses.
Note: A contract has important legal and insurance consequences that will impact a business. An attorney is best qualified to interpret what those consequences could be, and to advise your insurance client accordingly.
Explain to your contractor client that their carefully worded contracts can be used to help transfer risk. Most of the information below is from The Hartford, our railroad program carrier, and includes input from loss control, claims and industry professionals, along with knowledge obtained from many judicial decisions.
The following general guidelines are recommended by The Hartford. We suggest you pass them along to your railroad contractor or manufacturer client:
- Submit all agreements they draft to their attorney to review and evaluate before signing.
- Submit documents for review to their attorney that name them as an additional insured on any subcontractor’s insurance policies.
- Use specific language in all contracts. Your contractor’s interests may be best served when the wording is more specific – and if the sections of the agreement outlined in the insurance provisions express more specific coverage requirements.
What should be included in every contract, to aid railroad contractor risk management?
Here are a few contract basics to include, says The Hartford.
- WHO: Name the specific parties involved, along with their addresses.
- WHAT: Be specific in listing work to be completed, particularly if some work will be offsite. Address how you’ll handle change orders, completed operations and defective work claims. Thoughtfully add all the terms and conditions of the agreement. Incomplete agreements, or those not executed in a timely manner, can lead to problems. Be sure to include every aspect of the job, even if it seems inconsequential.
- WHERE: All parties should specify which state’s law applies to their contract (termed “choice of law”). In the event of a claim, this will help a court interpret the agreement. At the same time, understand that even with this agreement, courts will use their good judgment to arrive at an equitable resolution.
- HOW MANY: Include all agreements in your contract – don’t just refer to other agreements or documents. Courts typically look unfavorably on agreements that try to expand a party’s liability by referring to another document.
- WHY: Refuse any requests to add named insured coverage onto your policy, which may trigger coverage for events neither intended nor contemplated. There are more effective ways to handle these requests, says The Hartford.
- WHAT TO ADD: You may want to consider a separate policy for owner’s and contractor’s protective (OCP), railroad protective or joint venture coverage. Your agent can provide you with additional information.
- WHAT ELSE: Certificates of insurance (COI) are evidence of insurance, not an insurance contract. Your COIs should such pertinent information as the named insured, policy number, policy terms, limit and coverage by line of business. Watch for nonstandard forms and wording.
Of course, this is not an exhaustive list. Depending on the scope of the project, there may be additional aspects to consider.
Remember: States vary in their treatment of contracts
Some states prohibit broad form indemnification; many of the same states limit intermediate language, says The Hartford. Because these forms tend to favor defendants in cases, they could be considered unfair to one of the parties or inconsistent with good public policy.
On the other hand, these agreements are allowed in some states if they’re expressed in clear, unequivocal terms. That’s why it’s important in your railroad contractor risk management to include an attorney in navigating legal contracts – they understand state statutes when negotiating your contract. Otherwise, you may have no protection in the event of a loss.
Multi-state operations face even more complications. For instance, states have different statutes of limitations and “duty to provide a safe place to work” laws. What’s enforceable in one state may be unenforceable in another.
How can railroad contractors manage risk with their subcontractors?
The Hartford recommends being specific in your contract with regards to subcontractors. Spell out your requirements and be sure to include the core provisions in this checklist.
Your carefully crafted contract can help you in your railroad contractor risk management
A well-written contract can boost project performance, reducing costs and establishing a strong working relationship among all the parties involved. Your attorney, insurance agent and The Hartford can work with you develop a program for your specific contractor risk management needs. The points in this blogpost plus the checklist of provisions highlight key issues that may be very important to consider before you sit down to negotiate. But be aware, the Hartford warns, that these recommendations pertain only to insurance and indemnification – there may be other issues to consider. For the most up-to-date legal advice, check with your attorney.