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Options for transferring risk have their rewards


SAN DIEGO — Companies seeking to avoid tapping into their own insurance to cover risks when undertaking projects with other parties have options that can shift indemnity and protect against eroding defense costs, a policyholder expert said.

The biggest problem with transferring risk, though, is that policyholders often forget that it was negotiated, Washington-based policyholder attorney Michael S. Levine, a partner at Hunton Andrews Kurth LLP, said during a session Monday at Riskworld, the Risk & Insurance Management Society Inc.’s annual conference.

Joint-venture agreements, indemnity provisions, additional insured agreements and other insurance provisions are effective ways to transfer risk. Each option provides its own set of advantages, and choosing the correct one depends on the nature of the project.

Joint ventures are a “great vehicle if you have the opportunity to partner with one of your service providers” or with a company with which there is a long-term relationship, Mr. Levine said.

The benefit of a joint venture is that both parties are stakeholders and have an ownership interest. From an insurance perspective, however, separate coverage should be obtained for a joint venture because a company’s individual policy will only protect it and its endeavors, not those of another.  

“It’s where a lot of policyholders stumble,” Mr. Levine said.

He emphasized that coverage for a joint venture is limited to the percentage of ownership a company has in the business.

Indemnity provisions are another way for parties to shift responsibility, often with no regard for causation. They typically favor parties with superior leverage, such as property owners, general contractors and service providers.

Additional insured agreements can also be used to transfer risk, but companies must exercise diligence to ensure that they are covered, Mr. Levine said.

A Certificate of insurance alone is not sufficient to establish coverage and “does not amount to a hill of beans” if an incident occurs and a company is not listed as an additional insured, he said.

“Do your homework and do your due diligence before there’s an accident,” Mr. Levine said.