Insurance Obligation Clause template clause

    Updated: 24 March 2026

    Please note: these example clauses are intended as a starting point, not as legal advice. Always adapt the text to your specific situation and have important contracts reviewed by a legal professional.

    Clause text

    Article [X] - Insurance Obligations

    1. The Supplier shall maintain adequate insurance policies throughout the term of this Agreement and for a period of [e.g. 2 years] after termination, covering the risks associated with the performance of its obligations under this Agreement.

    2. The Supplier shall maintain at a minimum the following insurance policies:
    (a) general liability insurance with coverage of at least [currency] [amount] per occurrence and [currency] [amount] in the aggregate per year;
    (b) professional indemnity insurance with coverage of at least [currency] [amount] per claim and [currency] [amount] in the aggregate per year;
    [(c) cyber liability insurance with coverage of at least [currency] [amount] per occurrence, if the Supplier has access to the Buyer's systems or personal data.]

    3. Upon request, the Supplier shall provide the Buyer with copies of the relevant policies and proof of premium payment. The Supplier shall notify the Buyer without delay of any material change to the policy terms, any reduction in coverage, or the cancellation of any policy.

    4. If the Supplier fails to comply with its insurance obligations under this Article, the Buyer may take out appropriate insurance and recover the costs from the Supplier.

    5. The existence of the insurance policies referred to in this Article shall not limit or affect the Supplier's liability under this Agreement or at law.

    What does this clause mean?

    An insurance obligation clause requires your contracting partner to maintain adequate insurance for the risks arising from the contract. Without this clause, you run the risk that an uninsured party cannot pay for damage it causes, even when it is contractually liable.

    Paragraph 2 specifies the minimum coverage levels. General liability insurance covers damage to persons and property. Professional indemnity insurance covers financial loss caused by professional errors. For IT services or data processing, cyber liability insurance is increasingly standard.

    Paragraph 5 is important: the insurance supplements the liability but does not replace it. Ironclad (2025) reports that 92% of contract management errors are human in nature. Failing to check insurance certificates is a common example.

    When should you use this clause?

    Include an insurance obligation clause in contracts with service providers, contractors, consultants, and suppliers who work on your premises, access your systems, or deliver business-critical services.

    The clause is particularly relevant in construction (risk of personal injury and property damage), IT (risk of data breaches and system failures), and when engaging freelancers or temporary staff. Set the minimum coverage amounts based on the contract value and the potential exposure. A rule of thumb is that the coverage should be at least equal to the total contract value or the maximum reasonably foreseeable loss.

    Customize these elements

    • 1Set minimum coverage amounts based on the contract value and risk profile of the engagement
    • 2Add industry-specific policies: contractor all-risks (CAR) insurance for construction, product liability insurance for manufacturers
    • 3Determine whether the run-off period (paragraph 1) is long enough for claims that may surface after completion (e.g. 3 to 5 years for advisory work). Note: the run-off period is particularly relevant for claims-made policies, where the claim must be notified during the policy period. For occurrence-based policies, the date of the loss event determines coverage, not when the claim is made.
    • 4Consider requiring the Buyer to be named as an additional insured on the Supplier's policy

    Sources

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