When you hire someone to perform a service for your small business, it’s best to have a valid and enforceable written contract in place.
The days of using oral agreements and handshakes should be over but the truth is, too many businesses still rely on them to seal their most important deals.
Here’s why you may want to do things differently:
A few years ago, a Florida condo association hired a broker to purchase an insurance policy to cover its condominium tower in Palm Beach County.
The broker procured a policy from a well-known insurance carrier with coverage limits of $50 million.
Within months of obtaining the policy, two hurricanes blew through Florida leaving the condo tower with substantial damages easily exceeding the $50 million policy limits.
According to the condo association, when it expressed concern about the limits and repairs to the broker he assured them the insurance carrier would provide a total limit of $100 million for the repairs.
The association moved forward with more than $100 million in renovations.
When oral agreements go wrong
When the association sought reimbursement from the insurance company for the total cost of repairs, they were informed the policy only guaranteed $50 million and nothing more.
The association filed a lawsuit against the insurance company to recover the costs of repairs, and eventually reached an out of court settlement for only a portion of what it spent.
Due to the insufficient recovery, the association filed a lawsuit against the insurance broker alleging negligent misrepresentation and breach of contract, among other things.
According to the association, the broker breached an oral agreement to take responsibility for any damages incurred due to insufficient insurance coverage. The broker denied the agreement.
Because the court could not confirm the existence of any oral agreement between the parties beyond the written insurance policy, the association was unable to recover the remaining repair costs from the broker.
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Tags: business contract, oral agreement
