Maintenance of insurance: Overview, definition, and example
What is maintenance of insurance?
Maintenance of insurance refers to a contractual obligation requiring a party to maintain specific types and levels of insurance coverage during the term of an agreement. This ensures that adequate financial protection is in place to cover potential risks or liabilities associated with the agreement, such as property damage, liability claims, or other losses.
For example, a construction contract might require the contractor to maintain general liability and workers’ compensation insurance throughout the duration of the project.
Why is maintenance of insurance important?
Maintenance of insurance is important because it protects both parties in a contractual relationship from financial risks due to unforeseen events. It ensures that the party responsible for specific obligations under the agreement can cover potential liabilities or damages without placing undue burden on the other party.
For businesses, maintenance of insurance clauses provide clarity, reduce the risk of disputes, and help ensure compliance with regulatory or industry standards. This is particularly critical in agreements involving high-value assets, services, or activities with inherent risks.
Understanding maintenance of insurance through an example
Imagine a landlord leases commercial space to a tenant. The lease agreement requires the tenant to maintain liability insurance and property insurance for the duration of the lease. This protects the landlord from financial loss if the tenant causes damage to the property or if someone is injured on the premises.
In another example, a vendor agreement includes a clause requiring the vendor to maintain professional liability insurance. This ensures that the vendor can cover potential claims arising from errors or omissions in their work, protecting both the vendor and the client.
An example of a maintenance of insurance clause
Here’s how a maintenance of insurance clause might look in a contract:
“The Contractor shall maintain, at its own expense, the following insurance coverage during the term of this Agreement: (i) General Liability Insurance with coverage of at least $[Insert Amount] per occurrence; (ii) Workers’ Compensation Insurance as required by law; and (iii) Professional Liability Insurance with coverage of $[Insert Amount]. Certificates of insurance shall be provided to the Client upon request.”
Conclusion
Maintenance of insurance ensures that adequate protection is in place to cover risks and liabilities during the term of an agreement. It promotes financial stability, reduces disputes, and safeguards the interests of all parties involved.
By including clear maintenance of insurance requirements in agreements, businesses can ensure compliance, mitigate risks, and foster trust in 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.