Insurance requirements: Overview, definition, and example
What are insurance requirements?
Insurance requirements refer to the obligations set out in a contract mandating that one or more parties maintain specific types and levels of insurance coverage during the term of the agreement. These requirements are designed to protect against potential risks and liabilities that could arise from the activities or obligations under the contract.
For example, a construction contract may require the contractor to maintain general liability insurance, workers’ compensation coverage, and professional liability insurance throughout the duration of the project.
Why are insurance requirements important?
Insurance requirements are important because they reduce financial and legal risks for all parties involved in a contract. By ensuring adequate coverage, these provisions help protect against unforeseen events, such as accidents, property damage, or legal claims.
For businesses, including clear insurance requirements in agreements ensures compliance with regulatory or industry standards and safeguards their financial and operational stability. It also promotes trust and accountability between the parties.
Understanding insurance requirements through an example
Imagine a vendor agreement where the vendor is required to carry product liability insurance to cover any damages caused by defective products supplied to the client. The vendor must provide proof of insurance before the agreement becomes effective and maintain coverage throughout the contract term.
In another example, a commercial lease requires the tenant to maintain property insurance and liability insurance to protect the landlord from potential claims arising from accidents or damage on the premises. The lease also specifies the minimum coverage limits and names the landlord as an additional insured.
An example of an insurance requirements clause
Here’s how an insurance requirements clause might look in a contract:
“The Contractor shall, at its own expense, maintain the following insurance coverage during the term of this Agreement: (i) General Liability Insurance with a minimum coverage amount of $[Insert Amount] per occurrence; (ii) Workers’ Compensation Insurance as required by applicable law; and (iii) Professional Liability Insurance with coverage of $[Insert Amount]. The Contractor shall provide the Client with certificates of insurance upon request and shall name the Client as an additional insured under the General Liability policy.”
Conclusion
Insurance requirements protect parties from financial and legal risks by ensuring adequate coverage for potential liabilities. They establish clear obligations, promote accountability, and provide a safety net in case of unforeseen events.
By including well-defined insurance requirements in agreements, businesses can minimize risks, ensure compliance, and foster trust and security in their contractual relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.