Insurance clause
A clause requiring a party to carry specific types and amounts of insurance, and often to name the other party as an additional insured.
What it means
An insurance clause lists the policies a party must keep during the contract, and sometimes after it. Typical requirements include commercial general liability, professional liability (errors and omissions), workers’ compensation, commercial auto, and increasingly cyber liability. The clause sets minimum limits, such as $1 million per occurrence, and usually requires proof through a certificate of insurance.
For a small business this can be a real cost. A landscaping company hired by a property manager may have to carry $2 million in general liability, name the property manager as an additional insured, and give notice before any cancellation. If its current policy falls short, it has to upgrade before starting work or risk being in breach.
Insurance clauses back up indemnities. An indemnity is only as good as the indemnitor’s ability to pay, so the protected party wants an insurer behind it. Being an additional insured lets it claim directly under the other party’s policy. Some clauses add a waiver of subrogation, which stops the insurer from pursuing the protected party after paying a claim.
What to watch for
- Check each required coverage type and limit against your current policies before signing, and price any gaps.
- See whether you must name the other party as an additional insured, and confirm with your broker that your policy allows it.
- Look for waiver of subrogation or “primary and non-contributory” requirements, which usually need a policy endorsement.
- Check how long coverage must continue, since claims-made professional liability policies may need extended coverage after the contract ends.
Example clause
During the Term, Contractor will maintain commercial general liability insurance of at least $1,000,000 per occurrence and $2,000,000 aggregate, and professional liability insurance of at least $1,000,000 per claim. Contractor will name Client as an additional insured on the general liability policy and provide a certificate of insurance before starting work.
You must carry these minimum policies, add the client to one of them, and prove it before work begins.