The McLaughlin Company

What is a Joint Venture? First of all, let’s consider what a joint venture is. The following definition is probably as good as any: a joint venture (in older legal terms commonly referred to as a “joint adventure”) is a relationship in which two or more persons or organizations combine their labor or property for a single undertaking, and share losses and profits either equally, or as otherwise agreed.

Joint ventures may be formed for a variety of purposes developing a tract of land constructing a building conducting seminars providing educational facilities publishing a book marketing a product

So It’s a Partnership A joint venture is similar to a partnership. The rather tenuous distinction is that a joint venture generally relates to a single project or transaction, even though it may take several years to complete.

The Problem The important point to note is that when an organization enters into a joint venture a separate and distinct legal entity is created, even though control of the operations or activities of that new entity may be entrusted exclusively to one party.

The Problem Whether management of the joint venture is the responsibility of one or both of the joint ventures, or a third party hired for this purpose, special arrangements should be made to insured the liability risks of the joint ventures individually and collectively.

The Problem Managers, employees and others associated with the joint venture should be considered in this light as well.

Joint Venture Insurance Options Joint ventures, as separate and individual legal entities, require insurance protection just like any other entity. However, the options for securing the necessary protection are broader than those available to most other insured operations.

So How Do We Insure the JV? Three main options exist for managing the insurance exposures created by a joint venture: Each member insures its own exposure created by the joint venture under existing coverage (via alteration of their own policies); One member insures the joint venture in totality; or The joint venture procures its own insurance.

Each Member Insures its Own Risk This may be the least beneficial option for every member involved. First, use of this option is viable only when there is limited investment by the member parties; essentially limited to “man power” and time. Basically, this is a viable option when the JV is created with the sole purpose of conducting an activity on a short- term basis; this option would not work well if there is shared use of property or equipment.

Each Member Insures its Own Risk Use of this option requires several specific endorsements to both the commercial general liability (CGL) and workers’ compensation (WC) policies.

One Member Insures the Joint Venture in Totality The specifics of this option are varied based on the agreement between or among the members. If the member responsible for providing coverage chooses to add the joint venture to its own policy, essentially the same steps detailed above should be followed. However, if the member chooses to place separate coverage, the steps delineated below will apply. Any combination of these may be used if this option is chosen.

The Joint Venture Procures its Own Insurance As a separate legal entity, this may be the most appropriate option of the three. Beyond being the cleanest choice for protecting the joint venture, there are other advantages for each of the members:

Advantages Loss experience is assigned to the joint venture rather than the members; Losses caused by the JV do not affect the limits of coverage available to the members; Claims are handled by one carrier rather than, potentially, several; The members of the JV can be named as additional insureds on the joint ventures policy rather than the reverse (as in option 1 above); and Only one call is necessary to request a certificate or report a claim.