What is the best way to ensure your vendors have adequate insurance coverage?

1 Types of insurance

Depending on the nature and scope of your vendor relationship, you may require different types of insurance from them. General liability insurance is essential to cover bodily injury, property damage, and personal injury caused by the vendor's operations or products. Professional liability insurance is necessary in case of errors, omissions, or negligence in the vendor's services or advice that may result in financial losses or legal claims. Cyber liability insurance is also important to protect against data breaches, cyberattacks, or privacy violations that may affect the vendor's or your systems, data, or customers. Additionally, workers' compensation insurance should be obtained to cover medical expenses, lost wages, and disability benefits for the vendor's employees who are injured or ill on the job. Finally, commercial auto insurance should be obtained to cover vehicle damage, bodily injury, and property damage caused by the vendor's vehicles or drivers.

2 Verification of coverage

Before you sign a contract with a vendor, you should ask for proof of their insurance coverage. This usually comes in the form of a certificate of insurance (COI), which is a document that summarizes the policy details, limits, and expiration dates. You should review the COI carefully and make sure it matches your expectations and requirements. You should also check if the vendor has any exclusions, endorsements, or deductibles that may affect your coverage or liability. If you have any questions or concerns, you should contact the vendor's insurance agent or broker for clarification.

3 Claims and disputes

Even with adequate insurance coverage, you may still face situations where you or the vendor need to file a claim or deal with a dispute. For example, if the vendor causes damage to your property or injures your employee, you may need to file a claim with their general liability insurance. Or if the vendor fails to deliver the agreed service or breaches the contract, you may need to file a claim with their professional liability insurance. In either case, you should document the incident, notify the vendor and their insurer, and follow the claim process. If you encounter any issues or disagreements with the vendor or their insurer, you may need to seek legal advice or mediation.

Ensuring your vendors have adequate insurance coverage is a key aspect of vendor management. It can help you reduce your risks, protect your assets, and maintain your reputation. By knowing what types of insurance you need, verifying their coverage, and dealing with any claims or disputes, you can foster a more secure and successful vendor relationship.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?