Contractual Risk Transfer

A guide for municipalities

Contractual Risk Transfer (CRT) is a valuable tool that can be used by municipalities to mitigate the financial risks associated with third-party claims. Essentially, CRT ensures that a third party bears the financial responsibility for damages they cause. It assigns or lessens the cost of financial exposure when presented with a claim caused by a third party.

When indemnification is successfully transferred to another party, that third party (transferee) or its insurer takes on the obligation to defend and cover any losses or damages on behalf of the original party (you). As a result, the financial burden of the claim, including legal defense and compensation for injuries or damages, falls on them, not your insurance. This can lead to benefits that include a reduction in financial exposure, potentially lower insurance premiums, and the elimination of deductible payments. Additionally, it may protect you from claims that your insurance might not cover.

For example, imagine you contract a company to conduct repairs on the roof of the Town Hall. During the job, an accident occurs where the company’s ladder topples and gravely wounds a citizen entering the Town Hall. The injured resident decides to file a lawsuit against both the municipality (the property owner), as well as the contractor. The municipality is not at fault, yet it faces potential liability. With a solid contractual risk transfer agreement in place, the contractor would be responsible for defending the municipality in the lawsuit and covering any damages incurred, safeguarding municipal resources and interests.

To make certain the proper transfer of an activity or exposure is in place, a legally executed contract or agreement between you and the other party is required. The contract should stipulate important requirements, including insurance specifications and hold harmless indemnification.

Applicable Situations for CRT:
  • Leases
  • Construction Agreements
  • Transportation Contracts
  • Use of Facility Forms
  • Inter-Municipal Cooperation Agreements
  • Shared Services
  • Purchase Agreements

By implementing CRT, municipalities can safeguard their financial resources and focus on serving their communities while lessening the threat of third-party claims.

Contact Us

To learn more about unique municipality risks and how to address them, contact our OneGroup Municipality team.

This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.

Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.