TL;DR: Insurance clauses are the contract provisions that nobody reads until someone gets sued, and then they discover the coverage was wrong, the limits were too low, the additional insured endorsement was never obtained, or the policy lapsed three months ago. A well-drafted insurance clause does not just shift risk; it creates a funded backstop for the indemnification obligations that sit elsewhere in the agreement. Without it, your indemnity is only as good as your counterparty’s balance sheet. The devil is entirely in the details: coverage types, minimum limits, additional insured status, waiver of subrogation, certificate requirements, and tail coverage for claims-made policies. Get these wrong, and you have an unfunded promise masquerading as risk allocation.
What Is an Insurance Clause?
An insurance clause is a contractual provision requiring one or both parties to procure and maintain specified types and levels of insurance coverage throughout the term of the agreement (and sometimes beyond). These clauses serve as the financial infrastructure underlying the contract’s risk allocation framework. While indemnification clauses define who bears risk and limitation of liability clauses define how much risk, insurance clauses answer the critical question: where does the money come from?
Insurance requirements appear in virtually every commercial contract of meaningful value—construction agreements, professional services contracts, commercial leases, technology agreements, supply chain contracts, and M&A transactions. The specific requirements vary dramatically by industry, transaction size, and the nature of the risk being allocated. A SaaS vendor agreement may focus on cyber liability and errors-and-omissions coverage, while a construction contract will emphasize commercial general liability, builder’s risk, and workers’ compensation.
The clause typically operates as a covenant: a party agrees to maintain coverage as a continuing contractual obligation. Failure to maintain required insurance is generally a material breach, though the practical consequences depend on whether the other party has visibility into compliance—which is why certificate of insurance requirements and notice provisions are essential companions to the substantive coverage requirements.
Why It Matters
Key Elements of a Well-Drafted Insurance Clause
Market Position & Benchmarks
Where Does Your Clause Fall?
Market Data
Sample Language by Position
Customer-Favorable: “Vendor shall procure and maintain, at its sole cost and expense, the following insurance coverages with carriers rated A- VII or better by A.M. Best: (a) Commercial General Liability with limits of not less than $2,000,000 per occurrence and $5,000,000 in the aggregate; (b) Professional Liability / Errors & Omissions with limits of not less than $5,000,000 per claim and in the aggregate; (c) Cyber Liability with limits of not less than $10,000,000 per claim and in the aggregate; and (d) Workers’ Compensation as required by law. Customer, its affiliates, and their respective officers, directors, and employees shall be named as additional insureds on Vendor’s CGL and Umbrella policies on a primary and non-contributory basis. Vendor shall obtain waiver of subrogation endorsements on all required policies.”
Balanced: “Each Party shall maintain insurance coverage appropriate to its obligations under this Agreement, including at minimum: (a) CGL with limits of $1,000,000 per occurrence / $2,000,000 aggregate; (b) Professional Liability with limits of $2,000,000 per claim / aggregate; and (c) Workers’ Compensation as required by applicable law. Each Party shall name the other Party as an additional insured on its CGL policy. Upon request, each Party shall provide certificates of insurance evidencing the required coverages within ten (10) business days.”
Vendor-Favorable: “Vendor shall maintain commercially reasonable insurance coverage during the term of this Agreement, including general liability and professional liability coverage with limits consistent with industry standards for companies of similar size providing similar services. Vendor shall provide a certificate of insurance upon Customer’s reasonable request, not more than once per twelve-month period.”
Example Clause Language
Technology Services Agreement: “Service Provider shall, at its own expense, procure and maintain throughout the Term and for a period of three (3) years following termination or expiration of this Agreement, the following insurance: (i) Commercial General Liability insurance with per-occurrence limits of not less than $2,000,000 and aggregate limits of not less than $4,000,000; (ii) Technology Errors & Omissions Liability insurance with per-claim and aggregate limits of not less than $5,000,000, including coverage for failure to perform, breach of security, and unauthorized access to or disclosure of data; (iii) Cyber Liability insurance with per-claim and aggregate limits of not less than $5,000,000, including coverage for data breach notification costs, regulatory defense and penalties, and business interruption; and (iv) Workers’ Compensation insurance as required by applicable law and Employers’ Liability insurance with limits of not less than $1,000,000 per accident. All policies written on a claims-made basis shall include tail coverage for a minimum of three (3) years following termination.”
Commercial Construction Contract: “Contractor shall procure and maintain at all times during the performance of the Work, and for a period of two (2) years after final completion, the following insurance: (a) Commercial General Liability on ISO occurrence form CG 00 01, with limits of $1,000,000 per occurrence, $2,000,000 general aggregate (per project), and $1,000,000 products-completed operations aggregate; (b) Automobile Liability covering owned, hired, and non-owned vehicles with combined single limit of $1,000,000; (c) Umbrella/Excess Liability with limits of not less than $10,000,000; (d) Workers’ Compensation at statutory limits and Employers’ Liability at $1,000,000 per accident / $1,000,000 disease-policy limit / $1,000,000 disease-each employee. Owner, Architect, and their respective officers and employees shall be named as additional insureds on Contractor’s CGL, Auto, and Umbrella policies on a primary and non-contributory basis using ISO CG 20 10 and CG 20 37 endorsements. Contractor shall obtain waiver of subrogation endorsements on all required policies in favor of Owner.”
Commercial Lease: “Tenant shall maintain throughout the Lease Term: (a) Commercial General Liability insurance with limits of not less than $1,000,000 per occurrence and $2,000,000 aggregate, naming Landlord, its managing agent, and any mortgagee as additional insureds; (b) Property insurance covering Tenant’s personal property, inventory, and improvements on an all-risk/special form basis for full replacement cost; (c) Business Income insurance providing a minimum of twelve (12) months’ coverage; and (d) Workers’ Compensation as required by law. All policies shall include a waiver of subrogation in favor of Landlord. Tenant shall deliver certificates of insurance to Landlord prior to the Commencement Date and not less than thirty (30) days prior to the expiration of any such policy.”
Common Contract Types
Negotiation Playbook
Key Drafting Notes
Common Pitfalls
Jurisdiction Notes
United States: Insurance requirements are governed primarily by contract law and enforced under general principles of contract interpretation. Additional insured coverage, waiver of subrogation, and anti-subrogation rules vary by state. In New York, the anti-subrogation rule prevents an insurer from subrogating against its own additional insured. In Texas, the Texas Insurance Code imposes specific requirements on certificates of insurance and prohibits certificates from altering policy terms. Several states (including New York, through the Graves Amendment) have specific statutes governing insurance requirements in construction contracts. Workers’ compensation requirements are set by state statute and cannot be modified by contract. In many states, “additional insured” status must be reflected in an actual policy endorsement - a certificate alone does not create coverage.
United Kingdom: The Insurance Act 2015 modernized UK insurance law, introducing a duty of fair presentation and limiting insurers’ ability to avoid coverage for non-disclosure. Third-party rights against insurers are governed by the Third Parties (Rights Against Insurers) Act 2010, which allows direct claims against insurers when the insured is insolvent. The concept of “additional insured” is less standardized than in the US market; instead, UK practice typically relies on “noted interest” endorsements and direct contractual indemnities. Professional indemnity insurance is mandatory for solicitors (SRA minimum £250,000 per claim), accountants, and certain other regulated professionals. Waiver of subrogation is achieved through policy endorsement and is subject to insurer consent.
European Union and Other Jurisdictions: Insurance requirements in EU commercial contracts are influenced by local mandatory insurance regimes, which vary significantly among member states. Germany requires professional liability insurance for architects, engineers, and attorneys (Berufshaftpflichtversicherung). France’s décennale liability regime mandates 10-year construction insurance. EU-wide, the Solvency II framework governs insurer financial strength, which affects carrier rating requirements in contracts. In the Middle East, particularly UAE and Saudi Arabia, insurance requirements must comply with Islamic finance principles in Takaful (Islamic insurance) arrangements when dealing with Sharia-compliant counterparties. In Australia, workers’ compensation and professional indemnity requirements are set by state legislation, and construction insurance is governed by frameworks like the NSW Home Building Compensation Fund.
Related Clauses
This glossary entry is provided for informational and educational purposes only and does not constitute legal advice. Insurance requirements vary significantly by industry, jurisdiction, and transaction type. Policy forms, endorsements, and coverage terms are governed by the specific language of each insurance policy, not by the contractual provisions requiring their procurement. Always consult qualified legal counsel and insurance professionals when drafting, negotiating, or reviewing insurance clauses.
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