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Gas Supplier Contracts – Open for Negotiation

Friday, June 26, 2020
Tony Hopkins

What to Look For

By Tony Hopkins, CPCU, CIC, CRM

With all of the continued consolidation and push for even greater independence, many distributors are reviewing their major gas supplier relationships. 

Some distributors would prefer not to buy their gas from a competitor (choosing the likes of an Air Products), others are simply taking a “best package approach.”

For years, gas supplier contracts have been written primarily to the favor the majors.  The majors have the resources, the teams of attorneys and risk professionals, while most distributors do not.  These agreements were one-sided and the distributors had little say or input on the language that they eventually had to agree to.
The landscape has changed.  Majors are now more willing negotiate to make the terms more “fair.”  We’ve seen firsthand some very positive progress in these negotiations of late with many of the majors. 

If your contracts are not negotiated, you could have a multi-million dollar lawsuit on your hands that is not covered by insurance.  This lawsuit could come through in many ways, but specific examples would be bodily injury to your customer’s employee(s) or property damage caused at your customer’s site due to contaminated product, caused by your gas supplier.
There are many terms to review in contracts, here are some of the most important:

  • Indemnification – “Who pays for whose negligence.”  Most of the standard contracts are written so that the distributors pays, if the gas supplier is negligent.  For example, in most standard agreements I see, the distributor would have to pay if the gas supplier injured one of their customer’s employees while making a delivery.
  • Damage Limitations – If the indemnification isn’t one-sided, damage limitations are another way that the gas supplier can put risk back on the distributor, by limiting the damage the distributor or the distributor’s customer can claim (leaving the distributor paying for the rest).  The most common damage limitation is “limited to unit price” or “limited to and not to exceed the payment.”  As you’ll quickly learn, the payment for the product won’t even begin to pay for a significant injury or damaged equipment that is the result of contaminated product.
  • Insurance Coverage – The types of coverage and limits requested are not typically a big issue, but definitely review and have your agent review, because if you don’t, you could be in immediate breach of contract
  • Additional Insured Coverage – Most will ask to be named as an “Additional Insured” on your General Liability policy.  This allows the gas supplier access to your policy in the event of a claim.  What most distributors don’t know is that they don’t have coverage in place to pay for someone else’s (i.e. gas supplier) negligence, “whether caused in whole or in part” by the gas supplier. 

The Additional Insured Endorsement is the most commonly missed component of the contract, but is the most important.  In other words, many distributors have agreed to critical terms in the contract, without having insurance coverage to back it up.
Why this happens

  • Most distributors don’t know they need it and have not sent the contract to their agent
  • Most agents don’t know the issue exists and commonly misunderstand how it applies
  • Insurance carriers will not provide this automatically, you have to specifically ask for it, and then may not even get it

Recommendations on finding an agent to work through this with you:

  • Specialist in the welding & gas industry
  • Attorney on-staff to assist in reviewing contracts (free of charge)
  • Experience working with majors to negotiate contract terms
  • Experience working with insurance carriers to provide the proper coverage
  • Contact Horton for all of the above

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.