Insurance
An insurance clause requires a party, usually the supplier, to hold specified insurance policies at specified minimum levels for the duration of the contract.
What it does
A liability cap or an indemnity is only worth what the other side can pay. Insurance turns a promise into money. The clause lists the policies the supplier must maintain, the minimum cover for each, and proof requirements: a certificate of insurance on request, notice if a policy is cancelled or reduced, and sometimes naming the customer as an additional insured.
The policies commonly required in B2B service contracts are public liability (injury or property damage to third parties), professional indemnity or errors and omissions (financial loss caused by negligent advice or services), employer’s liability (mandatory in many jurisdictions), and increasingly cyber liability (data breaches and system failures). Product liability is added where physical goods are supplied.
Limits are stated per claim, per year, or both. A typical SMB services requirement might be professional indemnity of one to two million in the contract currency, though this depends on industry, deal size, and the counterparty’s standards.
Example wording
The Supplier shall maintain in force, for the Term and for two (2) years afterwards, with reputable insurers: (a) public liability insurance with a limit of not less than [amount] per claim; (b) professional indemnity insurance with a limit of not less than [amount] per claim and in the aggregate per year; and (c) cyber liability insurance with a limit of not less than [amount] per claim. The Supplier shall provide certificates of insurance on request and shall notify the Customer promptly of any cancellation or material reduction of cover.
Risks for SMBs
Promising cover you do not have. An SMB supplier that signs a clause requiring cyber insurance it has never bought, or professional indemnity at five times its current limit, is in breach from day one. Check the clause against your actual policies before signing, and price the extra premium into the deal.
Cover that does not match the contract. Professional indemnity policies often exclude contractual liability that goes beyond what the law would impose, such as broad indemnities or uncapped liability. A supplier may have the policy and still find the claim excluded. Ask your broker to review the contract’s liability and indemnity clauses.
Claims-made policies and run-off. Professional indemnity and cyber policies are usually claims-made: they cover claims made while the policy is in force, not when the work was done. If the supplier stops paying premiums after the contract ends, later claims are uninsured. That is why clauses require cover to continue for a period after termination.
Certificates are not policies. A certificate confirms a policy exists on a date. It does not show exclusions, deductibles, or whether the policy will respond to the contract’s risks. For high-value contracts, ask for the relevant policy wording or a broker’s letter.
Customer-side gaps. Customers rarely have to carry insurance under supplier contracts, but a customer relying on a supplier’s uptime or data handling should check its own cyber and business interruption cover rather than assuming the supplier’s insurance protects it.
Common variants and negotiation points
- Limits proportional to the deal. Limits should reflect the contract value and realistic exposure, not the customer’s procurement template. Push back on limits out of proportion.
- Run-off period. Two to six years after termination is common for professional indemnity, since claims can arise long after the work is done.
- Additional insured status. Customers sometimes ask to be named on the supplier’s policy. This is common for public liability, rarely available for professional indemnity.
- Subcontractor insurance. Require subcontractors to carry equivalent cover, or make the supplier’s policy cover work done by subcontractors. See subcontracting.
- Deductible disclosure. A high deductible means the supplier pays the first part of any claim itself. Ask what it is, and whether the supplier could meet it.
Related clauses
- Liability cap: insurance limits and liability caps should be set together.
- Indemnification: the promise insurance is meant to back.
- Data processing: cyber insurance is the usual backing for data obligations.
- Subcontracting: whose insurance covers subcontracted work.
This page is general information about a common contract clause. It is not legal advice and does not account for your jurisdiction, industry, or the specific contract in front of you. Talk to a qualified lawyer before relying on it.
Tracking renewal dates, notice periods, and other contract obligations is what Trackado does.