Commercial Accounts

By Frank Thompson on Mar 25 in Commercial Auto.

Don’t Give Your Company Away!
Over 5,000 years ago, King Solomon wrote about things that amazed him—“The way of the eagle in the air, the way of a serpent upon a rock, the way of a ship in the midst of the sea, and the way of a man with maid.” And to that we can add “propane marketers that are willing to give their company away over a commercial account.”

Commercial accounts fall into two categories for this discussion. First, commercial accounts that sell to the end user (such as the dispenser that you placed at a retail location and to whom you supply propane). Second, commercial accounts that are the end user (such as a municipality that uses propane for heating or the farm/ranch account using large quantities of propane to dry grains, etc.)

Both of these types of commercial accounts require a written contract between your company and them.
1) The contract should spell out who is responsible for the physical damage to the equipment and the contents of the tank.
2) It should specify when ownership of the propane takes place (upon delivery) and requires the commercial account to provide General Liability coverage on the propane that is sold or used.
3) The contract should specify that the commercial account provide your company with a certificate of insurance including your company as an additional insured.
4) It should provide for an indemnity agreement holding your company harmless in the event of a claim.

Recently, I heard of a propane marketer that had delivered propane to one of his dispenser operators. The dispenser operator filled a bottle that subsequently caused an explosion and fire that burned an individual. The marketer did not have a written contract with the property owner and dispenser operator. A claim was filed against the dispenser operator, the marketer, and the refinery. The marketer was forced to share in the settlement and the result of the paid claim was that his insurance company cancelled his insurance. The replacement insurance premiums were so high that he was forced out of business.

The days of selling to commercial accounts on a handshake, without a written contract, should be gone for every propane marketer.

The other type of commercial account (the end user) can cause just as much trouble to the propane marketer. While a commercial account offers the possibility of selling large quantities of propane, the lack of a written contract or one that requires the marketer to give up his legal defenses does not make sense.

The insurance agent normally learns of the commercial account only when asked to provide a certificate of insurance. Certificates of insurance were originally designed as a means to show customers, financial institutions, leasing companies, etc., that the account had insurance. However, the past twenty years has seen an expansion of risk management departments within the larger companies and municipalities. The risk managers are hired to reduce, eliminate, or transfer the risks facing the parent company to some outside source. This is accomplished by many means, but primarily through the written contract that they offer when they agree to purchase product or service from your company.

These contracts all have provisions about the insurance coverages the marketer needs to carry to comply with their contract. The goal of the wording is to outsource all the risk that the parent company faces to the marketer. It is at the point that a contract is proffered that your insurance agent needs to be notified. The proposed contract should be reviewed with two thoughts in mind: (1) Is the wording so broad as to make the marketer responsible for all losses even if your company is not at fault. (2) Is the insurance company willing to accept the additional liability that the contract requires?

The insurance agent, in conjunction with the insurance company, should review the proffered contract. If the wording is not acceptable, the contract can be revised before it is signed, thereby protecting both parties to the contract. Waiting to get the insurance company involved until after you have signed a contract may place you in the unenviable position of not being able to provide proof of insurance to your commercial account and may cause the insurance company to cancel your coverage.

Increasingly, the insurance companies are not willing to allow certificates of insurance to be issued that are too far reaching. Contracts that take away any and all defenses or call for an extended period of notification are not acceptable, and should not be acceptable to the marketer. Remember—the insurance company agreed to insure your company, not the rest of the world! Your statement that “every other insurance company out there will do it” will not endear you to the underwriter who is trying to protect his company and yours from far reaching contracts.

Before leaving the topic of certificates, I’d like to impress on each marketer the importance of reviewing all commercial customers’ accounts yearly. Do you have a written contract spelling out the insurance requirements for both sides? Do you have a current certificate of insurance from your commercial account including your company as an additional insured?

The whole purpose of a written contract that, among other things, demands a certificate of insurance is to place a legal firewall between your company and your commercial customer. It helps prevent the “shotgun” lawsuits that place liability on everyone in the propane distribution chain. See additional legal input

by Frank B. Thompson, CPCU
President, PT Risk Management

Frank B. Thompson is a chartered property and casualty underwriter based in Phoenix. He is the owner of PT Risk Management, an independent insurance company specializing in writing propane and petroleum risk policies throughout the U.S.

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