In most commercial contracts, commercial insurance will be required, particularly in those instances where a purchaser is procuring goods and services over an extended period of time. As a purchaser of goods or services, the buyer seeks and is entitled to protect itself from third-party claims and damages arising from the seller’s intentional or unintentional acts such as negligence. Liability insurance coverage from licensed, solvent and reputable insurers can substantially provide most protections to a purchaser in a commercial contract.

As any contracts professional is aware, insurance terms and conditions are laced with confusing and complex words, terms and phrases. Even for seasoned contracts professionals, such insurance language is a quagmire of arcane and confusing terminology. The following is a brief summary of some of the more esoteric insurance provisions commonly seen in contracts.

"Additional Insured" — An insurer providing extended coverage under an existing insurance policy to cover a third party for a special purpose or purposes. As an "additional insured," the covered party does not have primary insurance. Compare this to "additional named insured" which is primary coverage.

"All-Risk Insurance" — Obsolete terminology.

"Broad Form Indemnity" — A very broad insurance coverage obligating the insurer to indemnify against any and all claims submitted under the insurance policy even in cases where the insured party is not at fault.

"Causes of Loss-Special Risk" — Current and updated terminology replacing obsolete "all-risk insurance" terminology.

"Comprehensive General Liability" — Obsolete terminology.

"Commercial General Liability" — Current and updated terminology replacing obsolete "comprehensive general liability" terminology.

"Disclaimer" — A denial or disavowal (waiver) of a legal claim or rights.

"Guaranty" — An undertaking to assume or to be liable for the debt or obligation of another party.

"Surety" — The party undertaking a guaranty obligation.

"Self Insured" — Protecting against loss by setting aside one's own money. This can be done on a mathematical basis by establishing a separate fund into which funds are deposited on a periodic basis. Most often seen where the entity does not want to pay insurance premiums, usually very high, or a particular transaction is not insurable by commercial insurers. Generally not a favored form of risk protection as a bankruptcy proceeding will wipe out any "self insurance."

"Self-Insured Retention (SIR)" — Amount specified usually in a liability insurance policy that the insured must pay before the insurance company (insurer) pays. Unlike a deductible (which the insured pays to the insurer), SIR is paid directly to the claimant by the insured.

"Waiver of Subrogation" — Subrogation means the assumption by or transfer to a third party of the legal rights of another party. In case of insurance, most insurance policies stipulate that any legal claims (i.e., basis for a lawsuit) under which an insurer pays a claim under the insurance coverage is subrogated — transferred — to the insurer so the insurer can recoup the payment from any other parties potentially at fault. Any "waiver of subrogation" must generally be affirmatively consented to by the insurer.

Hopefully, the above information will assist you with negotiating favorable terms and conditions. Check with your insurance broker and your attorney before executing contracts with provisions that include use of confusing and complex words, terms and phrases like those in this article.