Contractual Risk Transfer: Your Policy or Mine?

Companies involved in collaborative undertakings frequently confront risk sharing and transfer issues. After they identify a project's hazards, they then decide who will bear what risk, in what way, and in what amounts. They also need to consider whether either party (or both) will maintain insurance for the other's benefit. When negotiating a contractual risk transfer agreement, the parties need to understand their bargaining position and relevant contract and insurance principles. They need to be cognizant of risk transfer limitations. They need to consider if the risk transfer will be supported by insurance, and if so, the scope of coverage required and their willingness to share it in the event of a loss. The companies also need to put in place measures to assure compliance with their contract. This article examines these matters and offers practice pointers for those confronting contractual risk transfer decisions.