FIN 461 : NEED TO EXPLAIN

HOLD HARMLESS AGREEMENTS

• HOLD HARMLESS LIMITED FORM

• HOLD HARMLESS INTERMEDIATE FORM

• HOLD HARMLESS BROAD FORM

HOLD HARMLESS LIMITED FORM

PARTIES A & B ARE RESPONSIBLE FOR THEIR OWN ACTIONS, BUT PARTY B HOLDS PARTY A HARMLESS IF A IS DEEMED VICARIOUSLY VIABLE

• YOU ONLY PAY FOR YOUR MISTAKES

HOLD HARMLESS INTERMEDIATE FORM

TRANSFEREE (PARTY B) AGREES TO PAY FOR ANY LOSSES IN WHICH BOTH THE TRANSFEREE AND TRANSFEROR (PARTY A) ARE JOINTLY LIABLE

• WE SHARE THE BLAME, BUT I’LL PAY FOR IT

HOLD HARMLESS BROAD FORM

PARTY B HOLDS A HARMLESS EVEN IF A IS SOLEY RESPONSIBLE FOR THE LIABILITY

• I PAY FOR EVERYTHING EVEN IF ITS ENTIRELY YOUR FAULT

• NOT ENFORCEABLE AND REALLY BROAD

RISK RETENTION VS RISK TRANSFER (FREQUENCY & SEVERITY FACTORS)

1. IF IT HAPPENS A LOT (HIGH FREQUENCY) AND CAUSES BIG PROBLEMS (HIGH SEVERITY) = AVOID

2. IF IT HAPPENS OFTEN (HIGH FREQUENCY) BUT ITS NOT A BIG DEAL (LOW SEVERITY) = RETAIN

3. IF IT IS RARE (LOW FREQUENCY) AND CHEAP (LOW SEVERITY) = HANDLE IT YOURSELF (RETAIN)

4. IF IT IS RARE (LOW FREQUENCY) BUT VERY EXPENSIVE (HIGH SEVERITY) = TRANSFER RISK

REQUIREMENTS FOR ALL LEGAL CONTRACTS

1. MUST BE FOR A LEGAL PURPOSE

2. LEGAL CAPACITY TO AGREE TO CONTRACT

3. INVOLVES VALID OFFER AND ACCEPTANCE

4. PROMISES MADE MUST BE SUPPORTED BY EXCHANGE OF CONSIDERATION

DISTINGUISHING CHARACTERISTICS OF AN INSURANCE CONTRACTS

1. ALEATORY CONTRACT: VALUES EXCHANGED MAY NOT BE EQUAL

2. CONTRACT OF ADHESION: INSURED MUST ACCEPT THE ENTIRE CONTRACT WITH ALL OF ITS TERMS AND CONDITIONS

3. CONDITIONAL CONTRACT: BOTH PARTIES MUST MEET ALL CONDITIONS

4. UNILATERAL CONTRACT: ONLY INSURER PROMISES ARE ENFORCEABLE

THREE DIMENSIONS OF ALL LOSS EXPOSURES

1. FINANCIAL CONSEQUENCES

2. ITEMS EXPOSED LOSS

3. PERILS THAT CAUSE THE LOSS

CONDITIONS REQUIRED OF THE NAME INSURED

1. COOPERATE WITH INSURER

2. NO FRAUD

3. PAY PREMIUM

4. PROTECT THE INSURED PROPERTY

5. SHOW PROOF OF LOSS

RISK MANAGEMENT TECHNIQUES

1. AVOIDANCE: NOT UNDERTAKING AN ACTIVITY THAT CREATES EXPOSURES TO LOSS

2. LOSS PREVENTION: TECHNIQUE THAT REDUCES THE FREQUENCY OF THE LOSS

3. LOSS CONTROL: SHIFTS FINANCIAL CONSEQUENCE OF LOSS TO ANOTHER PARTY OR INSURER

4. RISK FINANCE: DECISION NOT TO ACT THAT GENERATES THE FUNDS TO PAY FOR LOSSES