By: Martin M. Shenkman, CPA, MBA, JD

A hazard is a risk that is addressed explicitly, or assumed, in a contract or other arrangement. A contract can allocate who will be responsible for a particular hazard or what outcomes will be permitted. For example, if you sign a contract to purchase a house, what happens if there is a fire before the closing? Do you still have to close? Is there a price adjustment? Is the price adjustment limited to the buyer's insurance recovery? Is the contract cancelled with a full return of your deposit?

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