Insurance Clauses in Contracts: What to Require

What an insurance clause does, and why to require one An insurance clause requires a party to buy and keep specified insurance for the life of the contract, and often for a period after it ends. Its point is simple: an indemnity or a damages claim is only as good as the other side's ability to pay. Insurance puts a solvent insurer behind the promise, so that if something goes wrong, there is money to meet the claim rather than just a right to sue a party that may not have it. This guide sets out the cover to require and the conditions that make an insurance clause actually work. It is general information, not legal or insurance advice; the right cover depends on the work, the jurisdiction and the risk. ## The main types of cover to require Match the cover to the risk the contract creates. Common types include: - Public liability (general liability): injury to third parties or damage to their property arising from the party's operations. Standard for anyone working on site or with the public.

• Product liability: harm caused by goods supplied. Relevant for manufacturers, distributors and resellers.
• Professional indemnity (errors and omissions): loss caused by negligent advice or services. Essential for consultants, agencies, IT suppliers and other service providers.
• Employer's liability / workmen's compensation: injury to the party's own staff. In India this links to obligations under labour legislation.
• Cyber liability: data breach, business interruption and liability from a security incident. Increasingly required where a party handles personal data or systems.
• Property / asset cover: damage to goods, equipment or premises used for the work.
• Marine or transit cover: goods in transit, for supply and logistics contracts.
• Directors and officers (D&O): for corporate transactions and governance exposure. Name the cover you need rather than requiring every type; a blanket demand pushes cost up and gets negotiated away. ## The conditions that make the clause work Requiring cover is not enough. The clause needs the conditions that let you rely on it: 1. Minimum limits. State the sum insured per claim and in the aggregate. A limit set too low is little better than no cover.

2. Additional insured / interest noted. Ask to be named as an additional insured, or to have your interest noted, so you can claim on the policy directly rather than depending on the other party to pursue it.
3. Waiver of subrogation. This stops the insurer, after paying a claim, from turning around and suing you to recover its money.
4. Primary and non-contributory. The other party's policy should respond first, before any cover you hold, rather than sharing the loss with your insurer.
5. Evidence of cover. Require a certificate of insurance before work starts and on renewal, so you can confirm the policy is live and the limits are right.
6. Notice of cancellation or material change. You should be told in advance if the policy lapses or its terms drop.
7. Term and tail. Cover should run for the whole contract term. For claims-made policies such as professional indemnity, require run-off (tail) cover for a period after the contract ends, because claims often arrive late.
8. Who bears the cost. Normally the insured party pays its own premiums; say so to avoid argument. ## How insurance fits with indemnity and liability caps Insurance, indemnity and the liability cap work together and should be read together. The indemnity says who is responsible for a loss; the insurance clause makes sure there is money behind that responsibility; the liability cap limits exposure. A common mistake is a liability cap set below the insurance limits, which signals that the party can pay less than its policy would cover, or an indemnity with no insurance to support it. Align the three so the cover actually backs the promises. ## A sample clause (illustrative only) > The Supplier shall, at its own cost, take out and maintain for the Term and for [period] after it, with a reputable insurer: (a) professional indemnity insurance of not less than INR [amount] per claim; (b) public liability insurance of not less than INR [amount]; and (c) [other cover]. The Supplier shall name the Customer as additional insured, procure a waiver of subrogation in the Customer's favour, ensure the cover is primary and non-contributory, and provide a certificate of insurance on request and on each renewal. Adapt to the work and take advice before relying on it. ## Jurisdiction notes The types of cover are broadly similar across markets, but the available products, regulators and compulsory classes differ. In India, insurance is regulated by the IRDAI, and some cover (such as certain motor and workmen's compensation classes) is compulsory. Policy wordings, the meaning of additional insured, and the availability of waiver of subrogation vary by insurer and country, so confirm locally rather than assuming a clause written for one market works in another. Where a contract is cross-border, say which party insures which risk and in which territory the cover must respond. ## A quick insurance-clause checklist - Does the cover match the real risk the contract creates?

• Are minimum limits stated, per claim and in aggregate?
• Are you an additional insured, with a waiver of subrogation and primary cover?
• Must the party evidence cover with a certificate and give notice of cancellation?
• Does claims-made cover carry run-off for a period after the contract ends?
• Do the insurance limits, indemnity and liability cap line up rather than contradict? ## Where a contract workspace helps Insurance obligations are easy to write and easy to lose track of: the certificate that was meant to arrive before work started, the run-off cover that should outlast the contract, the limit that should match the indemnity. Drafting an insurance clause, reviewing it so a limit sitting below the liability cap stands out, tracking the certificate and renewal dates, and governing those obligations across every contract you hold can live in one AI workspace tuned to how your company contracts. Adira is one tool built so these obligations live in one workspace, not an inbox.