Each day the University enters into contracts with businesses, institutions, and individuals. If something goes wrong, a contract must say who will be financially responsible. The answer to who pays is found in the Insurance and Indemnification provisions of the contract. One of Risk Management's responsibilities is to protect the University from financial loss by reviewing those provisions and making sure they conform to Regental policy.

The Chancellor has been delegated authority to sign contracts on behalf of the campus. He has delegated that authority, in part, to various individuals on campus. Unless you have received specific authorization from the Chancellor's office, you cannot sign a contract on behalf of the University. Contracts can include permits, applications, facility use agreements, hotel reservations, leases, charters and just about any other kind of written agreement that contain terms and conditions that obligate the Regents. Contract disputes are not covered by the University's self-insurance program, making it even more important that trained and authorized personnel review and execute contracts on behalf of departments entering into agreements with off-campus vendors, consultants, contractors, and facilities.

The indemnification provision specifies who will pay for loss or damage arising out of a contract. Regents' Standing Orders prohibit campuses from assuming "3rd party" liability without the Regents' approval. The University requires contractors, consultants, vendors, and facilities users with whom it does business to assume responsibility for liabilities that arise from their negligent acts or omissions. The contract provision that addresses this is the indemnification provision, sometimes called the "hold-harmless" clause. This is a form of risk transfer. Through this provision the contracting parties agree who will assume liability for losses that arise from the performance of the contract. The University has standard indemnification language that requires each party to the contract to assume financial responsibility for liabilities that arise from its own acts or omissions. It restricts the University's liability "...in proportion to and to the extent such liability...(is) caused by or result(s) from the negligent or intentional acts or omissions of UC, its officers, employees, or agents."

A Certificate of Insurance verifies that the contractor, consultant, or facility user has purchased an insurance policy and that the insurance requirements of the contract have been met. It provides evidence that the insured can satisfy obligations to (1) pay for loss of or damage to property, (2) pay judgments or settlements, (3) protect The Regents if costs are incurred as a result of the insured's negligent acts or omissions, and/or (4) support the indemnification provisions of the contract. One of the most common certificates is the ACORD Certificate of Insurance form. See Quick Tips: Understanding the Acord Certificate of Insurance.

Proof of insurance is required to demonstrate that the contractor, consultant, vendor, or facility user can meet their obligations under the indemnification provision. A Certificate of Insurance is proof that an insurance policy has been purchased and that the Regents have certain rights under that policy. Absent such proof of insurance, the University might have to rely on a contractor's assets to pay for losses caused by the contractor, consultant, facility user, etc. The value of assets and their liquidity makes reliance on them untenable. In the event of a loss for which the contractor, consultant, or facility user has no insurance, the University might find itself paying the costs of the loss itself. In short, Certificates of Insurance are required if the University is to protect its own assets from exposure to losses created by the liability of those with whom it does business.

The University requires that it be named as "additional insured" on Certificates of Insurance. As an additional insured the University has coverage under the contractor's, vendor's, facility user's, or caterer's insurance policy for claims and suits alleging negligent acts or omissions by the contractor, facility user, etc. arising out of the contract. The Additional Insured coverage provides that the University will have legal representation for a claim or lawsuit in which the University is named, but is not negligent. Without this coverage, the University would have to provide its own defense in the event it was named in a suit that arose out of the negligent acts or omissions of the contractor, consultant, vendor, or facility user with whom it was doing business. This protection is very important as, in many cases, defense costs incurred by litigation exceed the cost of settlements and judgments.

Certificates should be retained for at least 3 years after the conclusion of the business for which the certificate was obtained. In some cases, the retention period must be longer: for instance in the case of a contractor responsible for the construction of a building. Call UCSB Risk Management for additional information.

The office of record for Certificates of Insurance is the department for which the work is performed.

When the University enters into an agreement, whether for the purpose of buying a product, obtaining services, or renting its facilities, it has insurance requirements, described in the contract, which must be met. It is the responsibility of the party with whom the University is contracting to understand and meet its obligations, including insurance, under the contract. However, you can use the Request for Proof of Insurance From Contractor or Vendor, the Request for Proof of Insurance From Facility User, or the Request for Proof of Insurance From Caterer to help the vendor, contractor, facility user, or caterer meet UC's insurance requirements by filling out the form with the contractually required insurance limits and sending it to the contractor, facility user, etc. as a friendly reminder that these requirements must be met before the contract can be executed.

UC Certificates of Insurance are issued on behalf of campus departments or employees who require them for official University business. They cannot be issued on behalf of student groups, alumni associations, unions, or other organizations that may have a close relationship with the University but are independent of it.

To obtain a UC Certificate of Insurance, complete the Request for UC Certificate of Insurance, and submit it, along with the Agreement, P.O., Contract, License, Permit, or other document that requires the certificate, to UCSB Risk Management. UC Certificates of Insurance are issued subject to the provisions of the Bylaws and Standing Orders of The Regents, which do not permit any assumption of liability that does not result from and is not caused by the negligent acts or omissions of its officers, agents, or employees. Further, the University's liability insurance is applicable only in proportion to and to the extent that claims, costs, injuries, or damages are caused by or result from the negligent acts or omissions of The Regents, its officers, agents, or employees. No Certificate can be issued against an Agreement, P.O., Contract, License, Permit, or other document that contains indemnification language under which the campus assumes liability not permitted by The Regents.

BUS-63, Insurance Requirements/Certificates of Insurance recommends specific types of insurance coverage and minimum limits when the University enters into agreements with outside contractors, consultants, vendors, or facility users. The Risk Management Administrator at Business Services can work with departments to develop appropriate coverages for instances not specifically addressed in the Bulletin. On a case-by-case basis, after risk analysis and evaluation, the campus Risk Manager, in consultation with responsible University administrators, may modify insurance requirements. Such review can lead to a determination that risks are low and requirements may be lowered or eliminated or, the converse, that risks are high and higher limits are appropriate. In determining insurance limits, considerations include: (1) the type of activity, (2) the exposure or potential risk the activity creates, (3) the types of insurance required, (4) the minimum UC requirements, and (5) availability.

See Quick Tips: Understanding the Acord Certificate of Insurance for a list of the critical items that should be checked when reviewing a certificate of insurance.

Careful attention should be paid to the Policy Expiration Date. Check to determine that the expiration dates for the insurance policy are far enough in the future to cover the period during which services will be rendered. In some cases coverage shown on a certificate of insurance will expire prior to the termination of a contract. A new certificate showing an extension of coverage may not be automatically sent; therefore it is recommended that the office(s) maintaining the certificates follow-up for renewal certificates. A reminder system of some sort should be used to request a new certificate when the coverage expires. If the certificate indicates "occurrence" form coverage, the expiration date should be on or after the termination date of the contract; if "claims-made" coverage, certification must be provided that coverage will survive for a period not less than three years following termination of the contract and shall provide for a retroactive date of placement prior to or coinciding with the effective date of the contract. Evidence that the other party's insurance coverage is currently in compliance with the contract terms should always be on file at the University. This is particularly critical in the event of litigation.

UC has developed a standard indemnification provision for its contracts that is consistent with the Standing Orders of the Regents and has been approved by UC General Counsel. The provision requires each party to the contract to assume financial responsibility for liabilities that arise from its own negligent acts or omissions. In essence the provision says the University will assume responsibility for the negligent acts or omissions of its employees, and the party with whom it is contracting will assume responsibility for the negligent acts or omissions of its employees. This is called mutual indemnification. Losses and/or liabilities arising out of other causes are not addressed.

CONTRACTOR shall defend, indemnify and hold UNIVERSITY, its officers, employees and agents harmless from and against any and all liability, loss, expense (including reasonable attorneys' fees), or claims for injury or damages arising out of the performance of this Agreement but only in proportion to and to the extent such liability, loss, expense, attorneys' fees or claims for injury or damages are caused by or result from the negligent or intentional acts or omissions of CONTRACTOR, its officers, employees or agents.

UNIVERSITY shall defend, indemnify and hold CONTRACTOR, its officers, employees and agents harmless from and against any and all liability, loss, expense (including reasonable attorneys' fees), or claims for injury or damages arising out of the performance of this Agreement but only in proportion to and to the extent such liability, loss, expense, attorneys' fees or claims for injury or damages are caused by or result from the negligent or intentional acts or omissions of UNIVERSITY, its officers, employees or agents.

It is not unusual to see contracts written by parties with whom the University wishes to do business that contain one-sided indemnification provisions that make the University responsible for anything that goes wrong. This is unacceptable as it subjects the University to potential liability for losses that may not arise as a result of the negligent acts or omissions of its officers, agents, or employees. For example:

UNIVERSITY shall defend, indemnify and hold CONTRACTOR harmless from and against any and all liability, loss, expense (including reasonable attorneys' fees), or claims for injury arising out of or in any way connected with this Agreement including, without limitation, claims for loss or damage to any property, or for death or injury to any person or persons.

Sometimes parties with whom the University wishes to do business require that the University agree to take responsibility for all liabilities and losses except for those that arise from their "sole negligence". Again this is completely legal if the parties agree to it, but it is unacceptable to the University as it requires it to assume responsibility for losses for which the other party may be partially responsible, as well as losses caused by persons not a party to the contract. The following is an example of such an indemnification provision:

University shall defend, indemnify and hold harmless PARTY A, its officers, agents, and employees, from and against any and all claims, damages, costs, expenses (including reasonable attorneys' fees), losses, or liabilities, arising out of or in any way connected with this agreement including, without limitation, claims for loss or damage to any property, or for death or injury to any person or persons with the exception of those claims, damages, costs, expenses, losses, or liabilities arising from the sole negligence of PARTY A, its officers, agents, or employees.

Under such an indemnification provision, all risk of loss will be the University's, except that directly attributable to the sole negligence of the party with whom the University is doing business. Thus it violates the Regents Bylaws that the campus cannot assume liability that does not arise from the negligent acts or omissions of its employees.

Under general liability insurance there are two types of coverage forms: the "occurrence" form and the "claims-made" form. The "occurrence" form affords coverage for any claim that is brought against the insured. There is no time limit for reporting a claim, provided there was insurance coverage at the time of loss, and as long as it is filed within the statute of limitations. See Quick Tips: Understanding the Acord Certificate of Insurance.

Under general liability insurance there are two types of coverage forms: the "occurrence" form and the "claims-made" form. The "claims-made" form affords coverage only for losses that occur and claims that are reported during the policy period. This is much more restricted coverage than that afforded by an "occurrence" form policy. This is the reason that University contracts require 3 years "tail coverage" for claims-made policies. "Tail coverage" extends for three additional years the period during which claims can be made against a typical "claims-made" policy. See Quick Tips: Understanding the Acord Certificate of Insurance.

Contracts are a source of potential liability for the University and require careful review. The review process should include the following steps:

1. Read the entire contract. It is not unusual for indemnification issues to be located in several places.

2. Are the limits of liability insurance required of the other party commensurate with the risks their work creates under the contract?

3. Are the limits required of the University reasonable and appropriate for the type of activity covered by the contract?

4. Does the contract need to be modified to show that the University is self-insured?

5. Most importantly, does the contract limit the University's liability to the negligent acts or omissions of University officers, agents, employees, invitees, and guests as stipulated in The Regents By-Laws and Standing Orders?

6. If the contract requires assumption of liability for property damage, is it covered by the University's property insurance programs?

The types and limits of insurance required in any contract should be based on the loss exposures created by the work of the party with whom the University is doing business. The types and limits should be determined in accordance with Business and Finance Bulletin BUS-63.

Contractors should be required to carry sufficient liability insurance to pay legal judgments that may be rendered against them. (If contractors are unable to pay such judgments, the courts may require payment from the University). To accomplish this, the contractor's liability insurance should:

• Cover the contractor's loss exposures.
• Contain limits high enough to pay reasonably foreseeable judgments.

1. Commercial Form General Liability Insurance provides protection against liability claims for bodily injury and/or property damage arising out of the contractor's use of the premises he/she owns (or leases) and most off-premises operations.

2. Personal Injury/Advertising Liability protects the contractor against claims alleging that he/she caused injuries of a non-medical nature, including:
   1. False arrest, detention or imprisonment, or malicious prosecution.
   2. Libel, slander, defamation or violation of right of privacy.
   3. Wrongful entry, eviction, other invasion of the right of private occupancy.

   Personal injury coverage should be required of contractors who provide advice to members of the public and who are not required to purchase professional liability insurance. This might include, for example, a social worker with a master's degree. Advertising liability protects the contractor against claims alleging he/she caused personal injury as a result of any advertisement, publicity article, broadcast, telecast, or advertising activities.

3. Products/Completed Operations Liability is for bodily injury or property damage caused by a merchant or manufacturer as a consequence of some defect in a product sold or manufactured or the liability incurred by a contractor as a result of improperly performed work after a job has been completed. The latter described part of products liability is called completed operations. This coverage provides protection against liability claims arising out of products (including food) sold or distributed by a contractor. Products liability coverage should be required from any contractors who sell or give away food, beverages, pharmaceuticals, etc.

4. Contractual Liability protects the contractor against liability assumed under contract (e.g. the acceptance of a "hold harmless agreement").

5. Business Automobile Liability Insurance provides protection against claims arising out of a contractor's use of automobiles. Whenever this coverage is required, care should be taken to ensure that the contractor's policy covers owned, non-owned, and hired automobiles. Business automobile liability insurance should be required when contract performance requires substantial use of automobiles. It is not as critical when the contractor's use of automobiles is incidental to performance under the contract. Whether or not to require business automobile liability insurance will require judgment on the part of the contract reviewers/negotiators.

6. Workers' Compensation and Employers Liability provides coverage for the contractor's liability for workers' compensation payments to injured workers and is required by law.

7. Professional Liability (also referred to as errors and omissions) protects "professionals" (e.g. attorney, accountants, physicians, architects, engineers) against claims arising out of the rendering of or failure to render a professional service, measured against the standards for the profession. Professional liability provides coverage for injury, including death, personal injury, and property damage arising out of a negligent act or omission of a professional. Professional liability insurance should be required of anyone who gives advice or provides services on which others have reason to rely and may be subject to legal action if the advice/services prove faulty. If the contractor is or employs professionals, professional liability insurance should be required.

8. Excess Liability does two things:
   1. It raises the limits of all "primary" or "underlying" liability insurance policies to a higher level.
   2. It may provide coverage in some areas not covered by primary policies.
   
   The University does not require contractors to purchase excess liability policies. However, to obtain the limits required by the University, some contractors may need to purchase this coverage.

In 1988 the University signed an agreement with the State of California stipulating that contracts between UC and state agencies need not include insurance requirements or require the exchange of certificates of insurance. They must however include mutual indemnification.