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The Contract:
Good risk management practice often will attempt to transfer the risk of accidental loss through contracts for both goods and services. Usually, California State University, Northridge requires the other party to a contract (contractor) to assume their fair share of liability arising out of the activity described in the contract. This transfer generally is appropriate, as the contractor is most often the party in the best position to control loss. However, poorly worded contracts may have just the opposite result by putting the burden of more risk on the University. That is why all University contracts with outside entities are processed through the Purchasing & Contracts Administration. All vendors and contractors who wish to do business with the University should register with Purchasing and Contracts Administration and review the Vendors & Contractors Guide on their web site.
Insurance:
The insurance clauses in contract and agreements are intended to transfer of risk by requiring suppliers, contractors, tenants and users of public facilities (i.e. the "other party" to most University/Auxiliary Organization contracts) to protect themselves and the University/Auxiliary against claims or judgments arising from their products, activities or use of our facilities. Usually the best way to assure that the transfer actually takes place (i.e. that the loss will be paid by someone other than the University/Auxiliary Organization) is to require insurance. That insurance should also protect the State of California, the Trustees of the California State University, the University, and the officers, employees, representatives, volunteers and agents of each of them. See the Purchasing & Contracts web site for insurance requirements details.
Minimum Insurance Requirements (reference EO 849, dated Feb. 5, 2003)
Contractor shall furnish to the CSU prior to the commencement of work an underwriter's endorsement with a certificate of insurance stating that there is General Liability insurance presently in effect for the contractor with a combined single limit of not less than $1,000,000 per occurrence, and $2,000,000 aggregate; and that vehicle insurance (where applicable) is in effect with a minimum coverage of $1,000,000 per occurrence.
(a) The certificate of insurance shall provide:
- That the insurer will not cancel the insured's coverage without thirty (30) days prior notice to the CSU;
- That the State of California, the Trustees of the California State University, the CSU, California State University, Northridge, and the employees, volunteers, officers, and agents of each of them, are included as additional insured's, but only insofar as the operations under this contract are concerned;
- That the State, the Trustees, and the CSU, and the employees, officers, and agents of each of them will not be responsible for any premiums or assessments on the policy;
- That the insurer has an AM Best rating of A: VII or equivalent.
(b) Contractor agrees that the bodily injury liability insurance herein provided shall be in effect at all times during the term of this contract. In the event said insurance coverage expires at any time or times during the term of this contract, contractor agrees to provide at least thirty (30) days prior to said expiration date, a new certificate of insurance evidencing insurance coverage as provided herein for not less than the remainder of the term of the contract, or for a period of not less than one (1) year. New certificates of insurance are subject to the approval of the CSU, and the contractor agrees that no work or services shall be performed prior to the giving of such approval. In the event contractor fails to keep in effect at all times insurance coverage as herein provided, the CSU may in addition to any other remedies it may have, terminate this contract upon the occurrence of such event.
(c) Workers' Compensation insurance coverage as required by the State of California.
Hold Harmless & Indemnification (Reference EO 849)
In addition to the University/Auxiliary Organization's standard requests for proposals, bid specifications and contracts to contain a description of the required insurance, they should also specify appropriate hold harmless and indemnification clauses. Hold harmless and indemnification clauses are agreements by which one party assumes the liability of another and agrees to defend them in the event of a claim. These are the legal instruments of the risk transfer. Insurance is the financial guarantee. The hold harmless and indemnification clauses should be written to take effect immediately upon execution of the contract. They should contain provisions that the organization be held harmless, defended and indemnified, and should describe the extent of such indemnification.
Insurance is only one way that the contracting party (contractor) can indemnify the University/Auxiliary Organization, and if you have an indemnity provision in your contact with the contractor, that contractor is obligated to indemnify the University/Auxiliary Organization whether their insurance covers the loss or not. This puts the onus on the contractor rather than the University/Auxiliary Organization to make certain that their insurance coverage is sufficient and current. So make sure your indemnity language is strong, and that if the contractor does not carry sufficient or correct insurance to cover their obligations, they do have the assets to indemnify those uninsured or underinsured exposures.
There are three main types of contract indemnification: Strict (or Type 1) Indemnification, Intermediate Form (Construction Projects), and, Limited Form.
- 1. Strict (or Type 1) Indemnification: Contractor indemnifies University/Auxiliary Organization for all claim costs arising from project except our sole negligence or willful misconduct.
- Intermediate Form: Contractor indemnifies except for our active negligence or willful misconduct. Our activity or knowledge may release the contractor.
- Limited Form: Contractor indemnifies for contractor's negligence. Can be used for cross indemnity. This is less useful but may be OK for service contractor.
The insurance policy, which financially supports the hold harmless and indemnification clauses, does not automatically become effective upon execution of the contract. Coverage applies only when the other party's insurance company issues the required insurance policies or endorses existing policies to conform to the University/Auxiliary Organization's requirements. As the insurance coverage does not become effective automatically, the University/Auxiliary Organization should require proof that the insurance is in effect before the contract is accepted.
A hold-harmless agreement usually does not relieve the University/Auxiliary Organization of legal liability for its own negligence, but it does relieve the University/Auxiliary Organization of legal obligations arising out of the contractor's negligence. Without the hold-harmless agreement, the University/Auxiliary Organization's ability to be protected by its additional insured status is weakened.
Certificate of Insurance and Additional Insured Endorsement
As proof of coverage, most insurance agents and brokers will provide a document called a certificate of insurance at no cost. Issuance of a certificate serves as evidence that the contractor has an insurance policy. However, the certificate does not modify the insurance policy itself. It does not guarantee that the required policy provisions are in place. Nor does the certificate tell the reader what exclusions or limitations may be found in the contractor's insurance policy. Therefore, the University/Auxiliary Organization must receive and review a copy of the policy or an endorsement amending the coverage to make sure that the actual coverage required is in effect. You should make every effort to obtain and review the endorsement or actual policy before work begins pursuant to the contract. Since all University contracts are processed through Purchasing and Contract Administration, they will assure that appropriate contractor insurance exist.
Primary Insurance Language
All policies for General Liability should state that the insurance is primary and that any insurance policy owned by your agency will be considered as excess and non-contributory to the underlying policy
Responsibilities
Based on the Executive Order #849 (California State University Insurance Requirements) and University Policy and Procedures #725-30 (Risk Management Policies) special situations require a Risk Management evaluation to determine the loss potential and impact on the University. This evaluation consists of answering such questions as:
- Who could be harmed? Visitors attracted? Minors involved?
- What are the activities and maximum likely loss? Dangerous? Crowds? Pollution? Alcohol?
- Where? On or off campus? Site control?
- When? Night? During sporting events?
- How likely would the campus/auxiliary organization be a defendant if there is a loss?
The Purchasing and Contract Administration processes all purchases of goods and services; administers all contracts for the University' including the procurement card program and vendor insurance. This is true for even the smallest of contracts.
Financial Services administers internal agreements between CSUN departments, colleges and divisions. These do not require Purchasing's review or signature approval. External agreements between CSUN and outside entities or Auxiliaries must be reviewed by Purchasing and must be signed either by Purchasing or another delegated signature authority.
For use of University facilities, non-CSUN organizations or individuals should go through the University Corporation. (See University Policy and Procedures: #100-01, #900-01 and #900-04.) If admissions are charged or food sold/served as part of or in connection with an academic program, it may be approved provided a business arrangement is negotiated through The University Corporation (TUC), or another CSU Northridge auxiliary organization.