Why contractual risk deserves more attention than a quick signature
Contracts move fast. Sales teams are closing deals, operations teams are onboarding vendors, and project managers are trying to keep things on schedule. Somewhere along the way, a contract gets signed—and often, no one stops to ask a critical question:
“Does our insurance actually support what we just agreed to?”
From the Commercial Lines side, this is one of the most common (and costly) issues we see.
Contracts Create Risk—Even When Everything Goes Right
Most contracts include insurance and indemnification language. That’s normal. The problem is that these clauses often:
- Transfer more risk than intended
- Require coverage that doesn’t exist on your policy
- Create obligations that only show up after a claim occurs
When that happens, insurance doesn’t always respond the way the contract assumes it will.
Common Contractual Traps We See
- Broad indemnification clauses
- “Hold harmless” and “indemnify” language can push responsibility for losses well beyond what your insurance covers—especially if the wording includes negligence you didn’t cause.
- Additional insured confusion
Many contracts require additional insured status, but the details matter:
• Ongoing operations vs. completed operations
• Primary and non-contributory wording
• Blanket endorsements vs. scheduled endorsements
Not all additional insured coverage is created equal. - Waivers of subrogation
Agreeing to waive recovery rights may seem harmless—but it can conflict with policy terms if not handled properly before a loss occurs. - “Standard insurance requirements” that aren’t actually standard
Contracts often demand coverage limits, endorsements, or policies that sound routine but may not be part of your current program.
Where Problems Show Up: During a Claim
Contractual risk rarely causes issues on a good day. It shows up when:
- A claim involves multiple parties
- Fault is disputed
- Insurers start reviewing contracts line by line
That’s when businesses discover they’ve agreed to obligations their insurance wasn’t designed to support.
How to Reduce Contractual Risk (Without Slowing Business Down)
You don’t need to turn every contract into a legal marathon—but a few proactive steps can make a big difference:
- Identify contracts with insurance requirements before they’re signed
- Standardize contract language where possible
- Know what your policies can and cannot support
- Review higher-risk agreements with your insurance advisor
Even a quick review can flag red flags early—when they’re still easy to fix.
Contracts Aren’t the Problem. Silence Is.
Contracts aren’t bad. Risk transfer isn’t bad. The issue is assuming insurance will automatically “take care of it” without verifying alignment.
At Stolly, we regularly help clients review contractual risk from an insurance perspective—not to slow deals down, but to help avoid unpleasant surprises later.
As you head into a new year of renewals, projects, and partnerships, now is a great time to ask:
Are our contracts and insurance working together—or against each other?
If you’re not sure, let’s talk. A short conversation today can prevent a very long claims discussion tomorrow.