Ever looked forward to spending a nice quiet night on the couch only to find you apparently agreed to a night out with a mate (and his friend) that involved dinner and footy tickets?

You vaguely remember chatting about it over a few drinks weeks beforehand, but as nothing was “set in stone” you eagerly hit the couch armed with takeaway and the latest DVDs.

Then your mate phones. He’s clearly miffed at you for reneging, and even suggests you reimburse his friend for the cost of the ticket.

It’s a simple example, but it’s indicative of the complexities and the trouble you can get yourself into when a contractual arrangement exists.

Consider this:

• Did an agreement between the parties exist in the first place?

• If a verbal contract was inadvertently entered into, are you liable to pay for the cost of the ticket the third party purchased?

• If you don’t reimburse the ticket cost, what happens to the relationship?

• What if you don’t have the money to pay for the ticket?

• What can the third party do to get his money back?

Entering contracts is part and parcel of owning and managing a business. A contract may be in writing, a verbal agreement or even implied. Prudent business-owners seek legal advice to weed out any onerous clauses a contract may contain, because if they don’t they may inadvertently enter into contractual arrangements they don’t understand and without a second thought to the enormous consequences of their actions.

Here’s a case in point: A builder is contracted to provide services to a client with a level of care that will ensure the works are fit for their stated purpose. It may impose a higher contractual duty than the normal standard of care, with the result being the contractual liability exclusion in the builder’s liability policy may apply.

Not understanding the issues surrounding contractual liability can affect any number of industries, professions and policy types, and place at risk a business and its directors’ assets.

But there is a way to reduce your risk – and you may already be covered under your current insurance policy.

Many (but not all) public and product liability insurance policies include cover for liability considered “normal” for your regular business activities. Minor tenancy agreements generally are automatically covered, but huge corporate contracts such as supply or civil contracts may be excluded as they can involve you taking on huge or “abnormal” liabilities.

That doesn’t mean you cannot pursue a lucrative contract – you just need to seek the appropriate advice and check coverage under your policies.

If you contact us before you sign on the dotted line, you’re likely to know your additional exposure and your level of protection under your current insurance program.

If you’re not covered, we as your broker may be able to obtain additional cover in the market for these liabilities. But sometimes it’s not commercially possible to get insurance cover for some of the more onerous clauses included in some contracts.

So rather than assume your liabilities are covered – only to find out later they’re not – check with your Scott & Broad|Clark Pacific adviser before you put pen to paper.

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