How to review the insurance requirements in a contract

To review a contract's insurance requirements, put every demand into a table (coverage, limit, form, endorsement, duration, insurer quality), compare each line to the policy forms you actually carry, and mark each gap as something to buy, negotiate or refuse. Do it before you sign, with your broker, because a requirement you cannot meet is not just a paperwork problem. Failing to carry the insurance you promised is a breach of contract, and your liability policy generally does not pay for that breach.

Step 1: find every place insurance appears

The "Insurance" article is only part of it. Read the whole agreement and any exhibits, and look for:

• the insurance article, schedule or exhibit, including any attached "insurance requirements" document
• the indemnity or hold harmless clause, which often has its own insurance language (see indemnification and hold harmless clauses and your insurance)
• the termination, default and payment clauses, since many tie payment or the right to start work to delivering a certificate
• definitions that expand who counts as the other party, such as affiliates, lenders, property managers or "all parties required by the Owner"
• the governing-law clause, which controls how state law limits indemnity and additional insured terms
• flow-down language requiring you to pass the same terms to your own vendors or subcontractors

Step 2: build a requirements table

For each coverage, write down what the contract demands. A blank table looks like this:

Fill in the actual numbers. Then add rows for conditions that apply across the board: deductible or self-insured retention caps, notice of cancellation, delivery date for certificates, and what happens if you fall out of compliance.

Step 3: compare to the policies, not to your memory

Ask your broker for the declarations pages, the forms list for each policy and copies of the endorsements. A contract that asks for a form the policy lacks is a gap even if your limits are right. Look at:

1. Limits and aggregates. The general aggregate is shared by every project the policy covers unless it is endorsed to apply per project. An umbrella can satisfy a limit requirement only if the contract allows it. See commercial umbrella insurance.
2. Occurrence versus claims-made. If the contract needs occurrence coverage, a claims-made policy fails it. If it needs claims-made professional liability, check the retroactive date and the extended reporting period. See prior acts coverage and retroactive dates.
3. Completed operations. Contracts for work you finish often want completed-operations coverage maintained for a stated number of years after completion. A policy cancelled or replaced during that window can leave a hole. See additional insured endorsements explained.
4. Endorsements. Additional insured, primary and noncontributory wording and waiver of subrogation each need their own endorsement or blanket wording. See primary and noncontributory wording in contracts and waiver of subrogation: what it is and when contracts require it.
5. Deductibles and retentions. Some owners cap them. If you carry a large self-insured retention, check that the cap is not exceeded.
6. Insurer quality. Many contracts ask for an insurer rated A- VII or better. Read what the numbers mean in AM Best ratings explained for business buyers. Some also require an admitted insurer, which excludes a surplus lines carrier.
7. Exclusions. The coverage you carry may exclude the very exposure the contract worries about. Professional services, pollution, residential construction and subsidence are common examples.

Step 4: sort the gaps

Each mismatch falls into one of three groups.

• Buy or amend. Raise a limit, add an umbrella, add an endorsement, change a retroactive date or add a coverage you did not have.
• Negotiate. Change the contract. Ask for a lower limit for a smaller job, a different insurer standard, mutual waivers, or a requirement limited to "to the extent of the indemnity obligations."
• Refuse. Some demands cannot be met or should not be. Examples follow.

Demands that deserve pushback

• "The certificate must state that the policy complies with this contract." The ACORD 25 says the certificate does not amend or extend coverage, and the NCOIL model and several state laws prohibit certificates that warrant compliance with a contract. Texas, for example, bars a certificate from referencing the requirements of other contracts. See certificates of insurance: what they prove and what they do not.
• "The insurer must give the owner 30 days' notice of cancellation." Standard conditions send notice to the first named insured. Holders get notice only if the policy or an endorsement says so. Ask whether your carrier offers an endorsement, or offer to notify the owner yourself within a set number of days.
• Indemnity for the other party's own negligence. Many states limit this in construction. Texas Insurance Code chapter 151 voids construction indemnity for the indemnitee's own negligence or fault, with an exception for the indemnitor's employees' injury claims, and also limits additional insured coverage that would give the same protection. See contractual liability coverage and insured contracts.
• Required limits treated as a cap. Insurance requirements are normally minimums. A clause that makes the required limit the ceiling on what the other party can recover from you, or that ties your liability to insurance proceeds only, deserves a legal read.
• Perpetual or open-ended duration. A requirement to maintain coverage "indefinitely" is not something a policy delivers. Replace it with a defined number of years after completion.

Step 5: a worked example (hypothetical)

Say a 12-person IT consulting firm gets a master services agreement from a large client. The firm checks the requirements against its policies:

None of the numbers is a market standard. The point is the method: the firm learns before signing that it can meet some terms, needs to buy others and should negotiate the rest, and that all of it goes to the broker with the real contract rather than a summary.

Step 6: document and diarize

• Keep the signed contract, the requirements table and the policy endorsements together.
• Calendar the renewal date of every policy that has to run for the contract's duration, and the completed-operations tail.
• Ask the broker to issue certificates on the contract's wording, with the endorsements attached.
• For leases, see insurance requirements in commercial leases. For government work, see insurance requirements for government contractors.
• For the bigger picture, contractual risk transfer: shifting liability by contract and insurance shows how the clauses, the insurance and the enforcement fit together, and the contract insurance requirements checker speeds the comparison.

This is general information, not legal advice. A lawyer should review indemnity and limitation-of-liability clauses on any contract that matters, and the state that governs the contract can change the answer.

Key takeaways

• Read the whole contract for insurance language, then turn the demands into a table you can compare with the policy forms.
• Compare against the declarations, forms list and endorsements, not your impression of the coverage.
• Gaps fall into buy, negotiate or refuse. Certificates that warrant compliance, open-ended durations and indemnity for the other party's own negligence are common refusals.
• Failing to carry required insurance is a breach of contract that your liability policy generally will not cover.
• Document the review, keep the endorsements and calendar the dates the contract requires.