This clause requires independent consultants to maintain specified types and amounts of insurance coverage during their engagement with the company. The clause typically mandates that consultants carry professional liability insurance (also called errors and omissions insurance), general liability insurance, and potentially other coverage types depending on the nature of consulting services. The consultant must name the company as an additional insured on their policies and provide proof of coverage before commencing work. This clause protects the company from financial losses resulting from the consultant's negligence, mistakes, or failure to perform services competently. It also ensures that if the consultant causes injury or property damage, their insurance—rather than the company's insurance or assets—bears the financial responsibility.
The clause matters because consultants often work on sensitive projects where their professional errors could result in significant financial or reputational harm to the company. By requiring insurance, the company transfers risk to the consultant and their insurer, reducing the company's exposure. This is particularly important when consultants have access to proprietary information, make strategic recommendations, or perform work that affects client relationships or regulatory compliance.
Before signing, consultants should verify that they can obtain the required insurance types and coverage limits at reasonable cost, and confirm that their existing policies can be endorsed to name the company as an additional insured without substantial premium increases. Consultants should also clarify whether the company will reimburse insurance costs or whether these are the consultant's responsibility. Companies should ensure that the specified coverage limits are appropriate to the actual risks involved and should request certificates of insurance before work begins, with a requirement for 30 days' notice before policy cancellation or material changes.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires independent consultants to maintain specified types and amounts of insurance coverage during their engagement with the company. The clause typically mandates that consultants carry professional liability insurance (also called errors and omissions insurance), general liability insurance, and potentially other coverage types depending on the nature of consulting services.
Why should I care about this clause?
The consultant must name the company as an additional insured on their policies and provide proof of coverage before commencing work. This clause protects the company from financial losses resulting from the consultant's negligence, mistakes, or failure to perform services competently.
What are my options?
It also ensures that if the consultant causes injury or property damage, their insurance—rather than the company's insurance or assets—bears the financial responsibility. The clause matters because consultants often work on sensitive projects where their professional errors could result in significant financial or reputational harm to the company.
How does this affect small businesses?
By requiring insurance, the company transfers risk to the consultant and their insurer, reducing the company's exposure. This is particularly important when consultants have access to proprietary information, make strategic recommendations, or perform work that affects client relationships or regulatory compliance.