This clause grants one or both parties the right to review and audit the other party's insurance policies to verify that required coverage is in place and adequate. It typically specifies what notice must be given before review, what documents must be provided (policy declarations, certificates of insurance, proof of premium payment), and what happens if the reviewing party discovers gaps or deficiencies in coverage. The clause may also define whether either party can require the other to increase coverage limits or add additional insured parties.
While categorized under force-majeure, this clause functions as a protective mechanism: by allowing policy review, parties can confirm that insurance will actually cover losses from unforeseeable events (the force-majeure scenario). Without review rights, a party might assume the other is insured only to discover—after a disaster—that the policy was cancelled, excluded the relevant risk, or had insufficient limits. This clause prevents that nasty surprise and ensures both parties have realistic expectations about financial recovery.
Negotiate clear, reasonable review procedures: specify that review requests must be made in writing with at least 10-15 days' notice, that the reviewing party may request updated certificates annually or upon material changes to operations, and that proprietary insurance terms remain confidential (redact premium amounts if necessary). Define what constitutes "adequate" coverage by reference to specific dollar amounts, industry standards, or regulatory minimums. Include a cure period (e.g., 30 days) for the reviewed party to remedy any deficiency before the other party can terminate the contract. Avoid overly broad audit rights that would allow unlimited or harassing requests.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause grants one or both parties the right to review and audit the other party's insurance policies to verify that required coverage is in place and adequate.
Why should I care about this clause?
It typically specifies what notice must be given before review, what documents must be provided (policy declarations, certificates of insurance, proof of premium payment), and what happens if the reviewing party discovers gaps or deficiencies in coverage.
What are my options?
The clause may also define whether either party can require the other to increase coverage limits or add additional insured parties.
How does this affect small businesses?
While categorized under force-majeure, this clause functions as a protective mechanism: by allowing policy review, parties can confirm that insurance will actually cover losses from unforeseeable events (the force-majeure scenario).