Must-have contract provisions for defending claims

Good contract management empowers a business to better manage its risks and secure better cover—and can mean the difference between finding cover and not. It also improves our ability to defend their claims in court.

When we review contracts of a technology insured at Travelers, we look for these provisions:

Specification

There must be a clear agreed specification of the product to be supplied. An accurate and technical description of the subject matter of the contract formalises what may have been discussed less specifically during negotiations.

Entire agreement clauses

The contract should supersede all prior statements and agreements, written and oral, so the insured is protected if questions arise as to promises made during the sale or negotiation versus what was delivered pursuant to the contract.

Exclusion and limitation clauses

A clause excluding or limiting the liability of the supplier is fundamental to any contract. It limits the total financial liability that may result from a breach of contract and will also seek to exclude liability for consequential losses, particularly loss of profits.

Customer obligations

While the focus of any technology contract is the supply itself, it is equally important for the contract to address customer obligations and clearly define the customer’s role in the implementation of the contract to avoid any gap in expectations.

Acceptance testing

Once a customer has accepted a product, they can no longer reject it. Contract provisions addressing acceptance testing should set an appropriate timetable and the elements of functionality and performance that the customer requires.

Warranties

Customers will seek to secure warranties covering the performance of the products supplied. A breach of warranty may result in a claim in damages, so take great care in providing warranties. Connect them to specific aspects of functionality or specification, with clear provisions that enable compliance.

Dispute resolution

Particularly in the early stages of a dispute, it is ideal to be able to resolve a conflict outside the court system. By including provisions for alternative dispute resolution in contracts, a business can compel dialogue between parties, then escalate discussions through a management hierarchy for both parties if a resolution is not reached.

The harder the market, the tighter terms will become. But when contracts contain these provisions, we are more likely to be flexible with higher limits and keener breaks.

Footnote: The information provided in this article is for general information purposes only. It does not constitute legal or professional advice nor a recommendation to any individual or business of any product or service. Insurance coverage is governed by the actual terms and conditions of insurance as set out in the policy documentation and not by any of the information in this article.

Toby Harris is technology practice leader at Travelers Europe.