Insurance Provisions in Vendor Contracts: A Drafting Guide for Generalist Lawyers

Treat the insurance section as real risk transfer, not boilerplate. The whole point of an insurance provision is to move the risk of something going wrong off the two of you and onto a third party in exchange for premium. Bradley reminded us that insurance can be the most significant part of an agreement, especially when the vendor is thinly resourced, because even the best indemnity language is worthless when the vendor cannot pay. Treat every insurance section as bespoke to this deal and this moment, since insurable risk and the market both shift year to year.

Match the required coverage to what the vendor actually does. Before you argue over limits, make sure the policies line up with the real risks of the work. A trucking vendor needs commercial auto and maybe pollution coverage, while an IT vendor needs cyber, and Bradley argued cyber belongs in almost every agreement now because nearly everything touches a computer. Workers' compensation and employers' liability are close to non-negotiable when the vendor has people on your site. Claims go sideways when the required insurance does not match the services being provided.

Mind the small words that decide how much coverage you get. The phrase not less than turns a limit into a floor instead of a ceiling, so as the customer you may reach a vendor's full coverage rather than the minimum on paper. Asking the vendor to purchase and maintain insurance at its own expense locks in duration and who pays the premiums, not just a one time purchase. And language letting the vendor carry whatever other coverage it deems appropriate hands your counterparty discretion you do not want. We read these provisions slowly because a few words move real dollars.

Get additional insured status by a separate endorsement. Being named an additional insured is the strongest risk transfer there is, because you get rights to a policy you never paid for, often first dollar with no deductible. The catch is that the default additional insured language in a policy usually comes loaded with limiters, so ask to be added by endorsement on the general liability, excess, auto, and cyber policies rather than relying on the standard form. Remember you still have obligations as an additional insured, like giving proper notice and getting consent before settling. Some policies, like directors and officers and errors and omissions, will not extend additional insured status at all.

Use primary, non-contributory, and waiver of subrogation to keep your own insurers out of the fight. When a loss hits both parties, primary language decides whose insurer pays first and non-contributory stops that insurer from circling back to yours for repayment. A waiver of subrogation keeps the deal's insurers from paying a claim and then suing you to get it back. The thread running through all three is the same, which is that you do not want a contract where someone else buys you coverage to quietly create new liabilities for your own business. We often extend the waiver to officers, directors, and affiliates so an insurer cannot route around it.

Demand a copy of the policy, not just a certificate of insurance. Outside Washington state, a certificate of insurance is close to worthless, since it only says coverage may exist and tells you nothing about what the policy covers, whether it complies with your contract, or how to give notice. Bradley has had to sue carriers who refused to hand over a policy to an additional insured who clearly had the right to see it. Put the burden on the party that bought the insurance to provide a full copy on request, and add a right to notice of any cancellation or material change. You cannot rely on coverage you have never read.

Protect claims made coverage with a tail. Errors and omissions and cyber are usually written on a claims made basis, which means the policy that responds is the one in force when the claim is made, not when the harm happened. Someone can surface a problem from this relationship years after the deal ends, by which point the relevant policy has expired and the coverage you expected is gone. As the buyer, require an extended reporting period or a maintenance obligation that survives termination, sized to the statute of limitations for the likely claims. Bradley put the common range at roughly two to four years, and closer to six for directors and officers exposure.

Keep limitation of liability language from undercutting your coverage. A broad liability cap can hand an insurer ammunition to argue it owes nothing until you prove your vendor was actually liable, which moves the fight from what was alleged to what you could win against your own counterparty. Watching the cap interact with indemnity and insurance matters because insurance covers accidents, not the willful or grossly negligent conduct some caps reference. When a draft says the cap applies to claims for which insurance is or may be available, strike it, because that ties your limitation to whatever the insurer decides to do. The cleanest deals keep the cap tight and let it apply to indemnification by default.

Aim for a united front against the insurers. The healthiest posture in a loss is you and your vendor standing together against a common set of insurers, rather than the insurers wedging themselves between two business partners. Surplus language that mixes indemnity, insurance, and the liability cap invites exactly that wedge. Keep the indemnity dispute, when there is one, a business to business matter and let the insurance do its job. That alignment is what preserves the relationship while the claim gets sorted out.

Build the bench before you need it, and call coverage counsel early. Sending insurance straight to the broker is tempting, but a broker is not your lawyer and cannot give you privileged legal advice. The teams that handle this well pair a risk manager with legal, the broker, and coverage counsel, each playing a defined role. Coverage counsel too often gets the call only after a denial, when the fight could have been prevented. Give notice early and get the right people involved before a problem hardens into a dispute.