Reducing Brewery Exposure Through Risk Transfer
In 1624, English Poet John Donne was credited with the phrase, “No Man is an Island.” In 2017, this could easily be adapted to say “No Brewery Is an Island.” All breweries work with numerous outside entities that range from your typical business exposures such as landlords, vendors and distributors to industry unique risks like food trucks, speakers/entertainers , and even collaborative brewers.
In most circumstances these relationships are typically negotiated informally, via a simple exchange where each party agrees to perform a specific duty and then part ways upon completion. This relationship usually works smoothly, but in the event of a mishap or accident, if a clearly described and agreed relationship doesn’t exist in writing, this can become a major headache for one or both parties.
There are some simple things that a brewer can do to mitigate their exposures that stem from working with an outside entity.
Contracts are the basis of stating your intentions as they pertain to a second party, and determining the duties of each party. When it comes to your business insurance, a signed contract will be one of the first things that will be reviewed to determine the extent of your liability arising from any particular event.
A good business practice is to sign contracts with all parties that you work with in any capacity. Dependent upon the relationship, contracts may be used to pass your liability exposures onto the other party.
Your best resource for contracts is typically an attorney. Often times an insurance agent can be used to review the insurance portion of a contract and explain how it affects your exposures.
Insurance-wise, one of the main components of a contract to pay attention to is the transfer of risk via the use of “Additional Insured” wording
WHAT IS AN ADDITIONAL INSURED?
Insurance policies typically cover the exposures of the person or entity that purchased the policy. This party is known as a “Named Insured.” The policy will respond to claims on the behalf of the Named Insured when the appropriate coverage is in place, as well as, provide defense costs and handle the payment of any damages or settlements resulting from the covered loss.
Most insurance policies give the named insured the ability to add “Additional Insureds”. As an Additional Insured a third party can be covered for their liabilities in the event of a claim.
PROVIDING ADDITIONAL INSURED STATUS TO OTHERS
There are several circumstances where you would typically be asked to provide coverage for Additional Insureds under your policy:
- Providing coverage for a landlord or building/facilities management company in regards to your premises
- Coverage for a facility or location you may be operating at temporarily, such as a beer festival, farmers market, beer distributor, public venue, etc.
- Coverage for liability as it pertains to rented equipment such as forklifts, kegs, etc
- Coverage for a town or governmental entity in regards to permits, or usage of their resources such as land or facilities.
REQUESTING TO BE LISTED AS ADDITIONAL INSURED FROM OTHERS
As an owner of a brewery, you should require your business partners to list you as an Additional Insured to prevent yourself from being held responsible for their liabilities.
Some examples of third parties you should be requesting to cover you as “Additional Insured” include:
- Food Trucks doing business outside your facility
- Distributors selling your products (Including Auto Liability if transferring your products, or using your logo)
- Canning Operations
- Presenters or Entertainers on your premises (Speakers, Musicians, Yoga Clubs, Outside Vendors)
- Collaborative Brewers (The guest brewer should request coverage from the host, as the product is typically sold by the host brewer.)
CERTIFICATES OF INSURANCE
At a minimum, you should require that every business that you work with be insured. If a business does not carry insurance, then the burden of defense/claim payments will more than likely fall on you.
A certificate of insurance is proof of the coverage carried by the Named Insured on that particular date of issuance. While typically reliable, this document does not guarantee the coverage will stay in place, nor does it provide coverage for another party unless specifically noted.
A certificate of insurance would normally be where you appear as an Additional Insured. Typically this coverage is included one of two ways:
- By specific endorsement: The Named Insured will ask their insurance carrier to specifically name you as an Additional Insured on their policy. The carrier will process an endorsement, which is then added to the policy. This method will usually incur a fee to the Named Insured, which could range from $20-$100, dependent upon the carrier
- Blanket Additional Insured or “per written contract”: Under these terms, the Named Insured will provide a certificate including you as Additional Insured using a policy provision that includes you on an automatic basis. TAKE NOTE that if a written contract is not in place, then this coverage does not extend to you. Many people will use a standard contract with all of their vendors, which would trigger the coverage.
In summary, all business owners should take steps to avoid assuming the liabilities of the companies and individuals that they do business with. A few minutes of paperwork could be the difference between being sued for large sums of money and being off the hook entirely.
As always, these situations vary wildly from case to case. Always consult a qualified attorney and/or insurance representative to help determine your appropriate course of action.