Insurance Basics: What You Need to Know
30 Jan, 2017By: John Sadler
Supercharge Liability Protection With Contractual Transfer 101
Securing insurance for tournaments and other sports events is an essential aspect of the planning process. Unfortunately, because many people do not understand it, they’ll leave the subject of coverage until almost the last minute – and then will rush to make decisions. The best decisions when it comes to insurance, however, are made by those who understand their options. Here is a quick overview of some essential aspects you might not yet know.
If there’s one thing we’ve come to understand from years of working in an insurance firm that specializes in sports events, it’s that many tournament hosts make the mistake of relying almost entirely on their own sports insurance for protection against liability – and neglect the importance of contractual transfer.
Contractual transfer is quite simply transferring the risk of loss and/or the responsibility to pay for loss to the other party in the contract. Smart contractual transfer is not only a requirement of savvy sports insurance underwriters, but may also result in instant insurance discounts and lower long-term rates due to a more attractive loss history. In addition, it clarifies who is responsible for what, which can provide incentives to all parties to engage in safer practices.
Stronger Party vs. Weaker Party
Typically, the stronger party (the tournament host) practices contractual transfer in an offensive capacity by imposing the requirements on the weaker party (the team or participant) as a pre-condition of participation. The weaker party may attempt to negotiate away unfavorable contractual transfer provisions in a defensive capacity but the terms are not normally negotiable due to the administrative expenses involved. However, the tournament host should be careful to only impose requirements that are fair and reasonable, as well as standard in the industry.
Most Common Contractual Transfer Tools
The following contractual transfer provisions should be specified in a tournament host agreement between the tournament host and the participating team, or, in some cases, individual participants.
Well-drafted waiver/release agreements are worth the paper they are written on despite contrary advice that is often provided by local legal counsel. These agreements work very well for adult participants and, in many cases, may result in lawsuit dismissal on summary judgment.
On the other hand, regarding youth participants, parental signatures are only recognized in about 10 states for purposes of possible summary judgment. In the other 40 states, the risk warning that should be included in a well-drafted waiver/release may serve as evidence of an assumption of risk by the minor participant, which can result in greatly reduced settlement costs. That is why it is essential for both the minors and the parent/guardian to sign the waiver/release. Tournament hosts should include a separate waiver/release in their registration materials that is drafted specifically to protect the interests of the tournament host.
Indemnification/hold harmless provisions attempt to clarify or even shift the responsibility for legal defense and costs of settlement or adverse jury verdict from one party in the contract to the other party. The primary focus of these provisions is bodily injury and property damage incidents but they can be expanded to encompass other causes of action as well. Three different versions – limited, intermediate and broad – can be used, depending on the intentions of the tournament host.
Many tournament host agreements take the intermediate approach and transfer responsibility to the participating team in the event that the team and its staff are at least one percent negligent in causing the injury. This means that the tournament host will be protected unless it is solely or 100 percent negligent. These provisions provide important contractual transfer protection, but it’s generally worthless unless backed by the General Liability policy of the participating team.
Insurance Requirements for Participating Teams
Tournament hosts should require participating teams to provide evidence of both Accident and General Liability insurance. The tournament host would prefer for claims to be paid by the team’s insurance instead of its own in order to protect its loss record. A better loss history will translate into the higher likelihood of insurance availability and competitive rates in the future.
A common requirement is that team must provide Excess Accident insurance with a medical limit of at least $25,000 and a General Liability policy with an “each occurrence” limit of at least $1,000,000, which includes coverage for Participants Legal Liability. We also advise that the tournament host be named an “additional insured” under the General Liability.
Some tournament hosts may have additional insurance requirements such as sex abuse & molestation and non-owned and hired auto liability. But it should be noted that many team insurance policies do not include these coverages and these requirements may result in additional expenses on the part of the team.
Compliance with what the team insurance requirements should be administered during a pre-tournament credentials meeting. Failure to provide evidence of the required insurance should result in disqualification. Fortunately, it is easy to obtain team insurance online 24/7 and in many cases, the insured will be able to immediately print off proof-of-insurance documentation through the company’s website.
Statement of Operational and Non-operational Control
It’s important for a tournament host agreement to specify the areas of responsibility for both the tournament host and the participating team in terms of operational control. Generally, liability follows operational control.
For example, many tournament hosts will limit their operational control to risks of injury that occur at the competition facility during scheduled practice and play as well as to any host-provided entertainment events. Tournament hosts will want to specify the areas where they may not have operational control, such as the selection of team staff, travel to/from and during the event, the selection of player housing, injuries that occur outside of the competition facility and host-provided entertainment events, etc.
A well-drafted provision in the tournament host agreement can be helpful to clarify which party has operational control and resulting liability.
Criminal Background Check Warranty
The tournament host may want to insert a warranty statement provision that all team staff have successfully passed a criminal background check by a third-party vendor.
Contractual Transfer Protections Don’t Take Place of Tournament Host Insurance
The heading above might be some of the most important information you can receive in advance of an event. And, in fact, some tournament hosts may wonder why they even need their own insurance if they have implemented the suggested contractual transfer mechanisms, including the requirement for teams to provide evidence of their own Accident and General Liability policy.
Tournament hosts definitely need their own insurance and can’t rely 100 percent on team insurance for the following reasons.
The team may present a fraudulent certificate of insurance.
The team insurance policy may include an unacceptable exclusion that was not displayed on the certificate of insurance.
Being named an “additional insured” on the team’s General Liability policy provides much weaker protection compared to a tournament host being a named insured under its own policy. For example, some additional insured endorsements may limit additional insured status for tournament hosts to situations where the team is 100 percent negligent.
In addition, tournament host insurance should be discounted if the underwriter understands that a team insurance requirement is in effect and that the tournament host administers the requirement for compliance.
Choose wisely when it comes time to select an insurance company. Ideally, you should be seeking out a partner with proven experience in the sports event industry. The company should be able to provide you with information on various insurance options available to you, and to advise you on the coverage you need. Having the correct insurance is essential – and having a professional partner you can trust can give you peace of mind and allow you to concentrate on doing your job.