Newsletter

Contractual Risk Transfer Wins and Lessons Learned from 2024

Effective contractual risk transfer is a critical strategy for protecting public agencies against unnecessary liability. Members can significantly reduce financial exposure by ensuring that contracts contain essential provisions such as indemnity clauses and insurance requirements. Read on to explore three liability cases from 2024—two successes and one costly lesson—highlighting the importance of well-structured written agreements.

Read More

Tree Damage and Risk Transfer

In the first case, a member agency successfully transferred financial responsibility for a claim to their tree service contractor after a tree branch fell on and damaged a vehicle. The damage was allegedly caused while the contractor’s employees trimmed tree branches along the street where the vehicle was parked. Fortunately, the member had a written agreement with the tree inspection and maintenance contractor. Because the agreement included indemnity language and insurance requirements in favor of the member, including the requirement to name the member as additional insured under the general liability policy, the claim was successfully tendered to the contractor. After the contractor investigated the incident, they accepted the tender, ensuring the member incurred no financial loss.

Sports Facility Liability Mitigation

A second instance involved a tragic event at a member sports facility. A participant suffered a fatal heart attack during a baseball game. Due to a well-structured lease agreement that included appropriate insurance requirements and indemnity language, the member was able to tender the claim to the facility’s operator. These proactive contractual measures allowed the member to successfully tender the claim to the operator, serving as a reminder of the importance of executing comprehensive lease agreements.

Construction Injury: The Cost of Missing Provisions

Not all cases have the benefit of successful risk transfer. In one situation, a construction-related injury resulted in significant costs borne by the California JPIA and its membership due to missing indemnification and insurance provisions in a permit agreement. The member issued a permit for local street construction, which was completed by a contractor. However, the permit failed to include a requirement for the member to be included as an additional insured on the contractor’s general liability policy. As a result, when a cyclist was injured after riding into an open trench left by the contractor, the member faced an uphill battle in tendering the claim. The case resulted in a $175,000 settlement and $43,000 in defense costs. This case underscores the necessity of including robust indemnity clauses and insurance requirements in all permit agreements.

These three cases provide important takeaways for all California JPIA members:

• Clearly defined and executed written agreements are essential.
• Well-crafted indemnity language ensures that the responsible party assumes financial responsibility for damages.
• Including the agency as an additional insured on contractor and permittee general liability policies is a powerful risk management strategy.
• Construction and other permits should always include indemnification clauses and insurance requirements.
• In service agreements, the scope of work should always be clearly defined to avoid disagreement about responsibility in the event of a loss.
• Members should work closely with their legal teams and risk managers to ensure all contracts include necessary risk transfer provisions.

Members looking to strengthen their risk management practices should reference the Authority’s Contractual Risk Transfer Manual. This document outlines best practices and includes sample risk transfer language for various contract types, from vendor agreements to construction projects. The Authority also recommends that members conduct a risk assessment to determine appropriate insurance requirements for each contract.

In addition, the Authority offers in-person instructor-led contractual risk transfer training. Members seeking a training opportunity at their own pace can access the Contractual Risk Transfer Tool through the Authority’s learning management system. Unlike traditional self-paced offerings typically completed in one or a few sessions, this resource supplements the Contractual Risk Transfer Manual. It acts as a tool to use in daily work to guide your decisions related to contractual risk transfer.

By implementing these best practices, members can safeguard public resources and ensure financial responsibility involves responsible parties. For more information, contact your regional risk manager.

< Back to Full Issue Print Article