Interoperability – the gold standard!
Why is interoperability important? Insurance is usually the primary funding source for indemnification, hold harmless and other obligations within a contract or agreement. The degree of interoperability between contracts and insurance policies may determine the degree to which insurance funding is provided. Not all agreements are insurable, but one thing is certain. Without insurance, funding is only as great as the net worth of the indemnitor.
As defined by the Cambridge Dictionaries Online, interoperability is “the degree to which two products, programs, etc. can be used together, or the quality of being able to be used together...” While the term is not often used to describe contract situations, its meaning best describes the ideal relationship of contract terms and conditions to property and casualty insurance terms and conditions.
Insurance policies are contracts that respond under certain conditions. Attorneys, through the contracts they write like leases and rental agreements, have the ability to create some of the conditions to which available insurance must respond. The insurance industry is not stagnant and changes are constant. Using insurance and indemnification language from prior contracts or legal resource guides that may not have kept pace is not advisable.
For example, effective April 2013 the Insurance Services Office (ISO) changed the language of most Additional Insured endorsements making them no broader than “…the extent permitted by law” and if coverage is required in a contract or agreement it “…will not be broader than that which you [insured] are required by contract or agreement to provide”.
This means that a poorly written contract may “reduce” the maximum coverage available to an Additional Insured.
Lee Hoffman has been helping attorneys analyze their client’s exposures to risk for over twenty years. He has helped attorneys augment their insurance, indemnification, hold harmless and risk transfer agreements in order to optimize the probability that funding for risks and obligations under contract will be available. Mr. Hoffman also created a two hour CLE class on the interoperability of contracts and insurance policies.