Insurance obligations in commercial contracts

There are several routes to managing contractual risk, including warranty and liability clauses in contracts, insurance against the risk, due diligence to establish whether a risk exists, and so on. This golden oldie focuses on the importance of aligning a company’s insurance with its contractual liabilities.

IP Draughts

lloydsTemplate agreements – particularly those designed for larger transactions such as manufacturing, product trials, distribution or licensing – often include obligations on a party to have insurance against commercial risks.

General approach

Typically, the insurance clause will appear after a clause dealing with liability and indemnities. Faced with such a clause in a contract that you are reviewing, some of the obvious alternative ways of dealing with the clause are:

  1. To say to your client “ask your insurers whether you comply with the clause”. Depending on the answer, and on the wording of the clause, it may be safe to leave the clause as drafted.
  2. To say to the other party in the negotiations “here are details of our current insurance; we are not going to change our insurance, nor are we going to promise that we have particular insurance” and modify the clause accordingly.
  3. To delete the insurance clause…

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