Noninsurance Transfer

Definition - What does Noninsurance Transfer mean?

A noninsurance transfer is the transfer of risk from one person or entity to another by way of something other than a policy of insurance. Most commonly, the techniques used involve hold harmless, indemnity, and insurance provisions in contracts.

A noninsurance transfer is also know as a contractual risk transfer,

Insuranceopedia explains Noninsurance Transfer

Perhaps the simplest and among the most common methods of risk transfer is the purchase of an extended warranty on a product by a consumer. The extended warranty is a contract that transfers the risk of a defective product from the buyer to the seller or manufacturer. Noninsurance transfers of risk are often used in the construction business as well. One method is to require one party, let’s say the framing subcontractor, to name another party, let’s say the general contractor, in the framing subcontractor’s liability insurance policy. In this example, the general contractor has transferred its risk to the framing subcontractor by way of a contract with the framing subcontractor rather than by purchasing insurance.

Another method is by way of indemnification clauses in contracts between, for example, general contractors and subcontractors. Three examples follow. First is what is known as a broad form hold harmless clause. Such a clause provides that the indemnitor (the party that will be held responsible for any loss) will hold the indemnitee (the party that will be protected from any loss) harmless even if the indemnitee caused the loss. Second is what is known as a comparative fault clause. With such a clause the indemnitor will be responsible for damages that it causes, and only for damages that it causes. Third is what is known as an intermediate clause. With such a clause the indemnitor holds the indemnitee harmless unless the indemnitee is solely responsible for the loss. Intermediate hold harmless clauses are also sometimes used between general contractors and owners. In this case, the general contractor would agree to hold the owner harmless for any loss or damage on the job unless the owner was solely responsible for the loss or damage.

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