This clause requires one or both parties to carry insurance (like liability insurance or professional indemnity insurance) and sometimes to name the other party as an additional insured. Insurance protects you if something goes wrong—for example, if a contractor damages your property, their insurance pays for repairs rather than you having to sue them. This clause is important because it ensures money is actually available to pay claims; without it, a judgment against someone is worthless if they have no assets. In the US, this is especially common in construction and professional services.
Check that the insurance amounts are realistic for the actual risks involved—don't accept extremely high requirements that would be expensive or impossible to obtain. Ask to see proof of insurance (a certificate) before work starts, and make sure the insurance will still be in place after the contract ends (important for claims that appear later). If you're the one required to carry insurance, negotiate whether the other party must reimburse you for the cost of adding them as an additional insured. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires one or both parties to carry insurance (like liability insurance or professional indemnity insurance) and sometimes to name the other party as an additional insured.
Why should I care about this clause?
Insurance protects you if something goes wrong—for example, if a contractor damages your property, their insurance pays for repairs rather than you having to sue them.
What are my options?
This clause is important because it ensures money is actually available to pay claims; without it, a judgment against someone is worthless if they have no assets.
How does this affect small businesses?
In the US, this is especially common in construction and professional services.