Insurance and Commercial Contracts in Technology

If your General Liability insurance policy extends to $2,000,000 per occurrence does that mean you can just negotiate a $2M cap on liability in your commercial contracts and assume that you will be covered?

Unfortunately, No.  Most GL insurance policies are quite complex.  Here are just a few of the issues related to GL insurance that I regularly see when negotiating risk allocation in commercial contracts related to technology:

1.  There is usually a definition of an “insured contract” and it may expressly exclude many of the contractual obligations under which your business is regularly assuming liability.

**Make sure you understand what your “insured contract” coverage covers.  Note that any contractual obligations you take on that are not insured contracts directly expose the business to potential damages without coverage.

2. It is quite common for a GL policy to have an exclusion of coverage for liability related to one or more of Infringement of Patents, Infringement of Copyright, Title, Slogan, Trademark, Trade Dress, Trade Name, Service Mark or Service Name.

**Ask your insurance agent about negotiating additional coverage for some or all of these high risk items.  Note that some coverage in these areas is perceived to be so risky that insurers will not write policies for them in certain business areas.  This should help you understand just how risky it is to take on an indemnity obligation — if an insurer refuses to cover the risk for your business, you should think hard about whether you are willing to directly cover this same risk for your business partners or customers.

3. It is quite common for a GL policy (and associated riders) to have exclusions of coverage for certain assumed liabilities that would *not* have belonged to the insured in the absence of a contract.

**Many indemnities function to move risk from where it would lie under the law to an alternate party.  Before you accept an indemnity assuming liability that you would not otherwise have under the law, check with your insurance agent and make sure you understand whether that indemnity will be covered by the insurance or will potentially expose the company to direct damages without coverage.