Clause primer
Insurance requirements clause
The clause requires a party to carry specified types and amounts of insurance, name the other party in defined ways and prove that coverage exists.
Legal information, not legal advice. What a clause does depends on its exact words, the rest of the agreement and the governing law.
Also called: insurance covenant, required insurance, insurance and additional insured clause. Where you find it: Services and consulting agreements, construction and facilities contracts, commercial leases, vendor and supply agreements, and event and logistics contracts.
SAMPLE CLAUSE (INVENTED FOR THIS PRIMER)
During the Term and for two years after, Contractor shall maintain, with insurers rated A- or better by a recognized rating agency: commercial general liability insurance of at least $1,000,000 per occurrence and $2,000,000 aggregate; professional liability insurance of at least $2,000,000 per claim; and cyber liability insurance of at least $3,000,000 per claim. The general liability policy shall name Client as an additional insured and shall be primary and non-contributory to any insurance Client carries. Contractor shall deliver certificates of insurance before starting work and upon renewal. These requirements do not limit Contractor's liability under this Agreement.
How it works
Duration
Requiring coverage after the term matters for claims-made policies, such as professional and cyber liability, which cover claims made while the policy is in force. Without a tail period, a claim arising from past work may go uninsured.
Coverage types and limits
Each coverage line responds to a different risk: bodily injury and property damage, professional errors and data incidents. Limits should match the realistic exposure under the contract and the insurer rating sets a minimum financial strength.
Additional insured and primary status
Additional insured status gives the client rights under the contractor's policy, and primary and non-contributory wording means that policy pays first. Whether the policy actually provides this depends on its endorsements, so the contract language alone does not create coverage.
Certificates and no-limit sentence
Certificates offer evidence of coverage but generally do not change the policy terms. The final sentence keeps the insurance amounts from being read as a cap on liability.
Why it is there
The clause makes sure that a party's contractual obligations, especially indemnities, are backed by funds that will be there when a claim arises. It protects the party receiving services or occupying the other side of the risk, usually the customer or landlord. It also protects the insured party's counterparty from that party's insolvency, since an insurer will often still respond even if the insured cannot pay.
How it works with other clauses
- Indemnification: insurance should cover the risks indemnified, and contractual liability coverage may be needed for an indemnity to be insured.
- Limitation of liability: the clause should state that insurance limits are not a cap, and caps are sometimes set by reference to insurance proceeds.
- Waiver of subrogation: many clauses also require each party's insurers to waive subrogation, which needs a matching policy endorsement.
- Subcontracting: the agreement should say whether subcontractors must carry the same coverage.
Negotiating it
Who it protects: The customer, owner or landlord receiving the benefit of the coverage.
If it protects you
- Keep additional insured, primary and non-contributory status, and a waiver of subrogation, with endorsements provided on request.
- Keep a post-term period for claims-made coverage.
- Keep the statement that insurance does not limit liability, and notice if coverage is canceled or materially reduced.
If it runs against you
- Standard ask: limits and coverage lines that match the insurer's existing program; fallback: higher limits through an umbrella or excess policy with time to obtain them.
- Ask that additional insured status apply only to liability arising from the insured's own work.
- Ask that notice of cancellation be given by the insured, since insurers may not agree to notify third parties.
Escalate before accepting: Coverage lines or limits the party cannot obtain, or an obligation to insure risks outside its own work, usually warrant escalation before signing.
What AI explanations get wrong
- Treating a certificate of insurance as proof of additional insured status; check the actual endorsement or policy.
- Ignoring occurrence versus claims-made coverage; check the policy form and whether the clause requires a tail or extended reporting period.
- Reading insurance limits as a liability cap; check the limitation of liability clause and any no-limit language.
- Assuming any additional insured requirement is enforceable as drafted; check for state anti-indemnity or insurance laws that may restrict it in construction and some other contexts.
Where the law varies
Some states restrict additional insured requirements or indemnity-related insurance obligations, particularly in construction contracts, and the rules differ by state. Insurance regulation and policy interpretation also vary by jurisdiction.
TOOLS
Need a primer like this for a clause in front of you? The Clause Primer Kit, included in All-access, produces one in this format inside the AI tool you already use, with checks built in. For reviewing whole agreements, see the Plugin Playbook: Services Agreements.