Insurance coverage basics

Types of coverage

Insurance-requirement clauses commonly mandate at least the following types of insurance:

• Commercial general liability coverage, including bodily injury, personal injury, and property damage liability, along with contractual liability coverage for Insured-Party’s indemnity obligations under the contract, if any. The laundry list of specific perils may not be necessary if an ISO CGL form is used; according to one reference, “Unlike older forms that required endorsements to broaden coverage, the CGL provides very broad coverage that can be narrowed by endorsement. It is a modular policy that can provide several coverages in combinations.” Rupp’s Insurance & Risk Management Glossary, Commercial General Liability (accessed Aug. 22, 2007).
• Errors and omissions / professional liability coverage.
• Business automobile bodily injury and property damage liability for owned, non-owned and hired automobiles.
• Worker’s compensation coverage and employer-liability coverage as required by applicable law (including maritime-related law where applicable) where work is to be performed pursuant to the contract or anywhere else an employee performing such work is normally employed.

Duration of coverage

The time during which coverage must be maintained will sometimes be a matter to be negotiated. In services contracts, it’s not uncommon for coverage to be required at any time services are being performed, at any time the service provider is present at the customer’s premises, and for one- to three years thereafter.

Carrier ratings

Coverage is often required to be maintained with carriers having at least a stated A.M. Best rating.

Occurrence- or claims-made basis?

“The coverage trigger of an occurrence form is bodily injury or property damage that occurs during the policy period.” Chubb Commercial Insurance General Liability Definitions (accessed Aug. 22, 2007). In contrast, “[t]he coverage trigger of a claims-made form is the making of a claim against the insured during the policy period.” Id.

Combined single limit

See generally Leland-West Insurance Company, What is a Combined Single Limit? (accessed Aug. 22, 2007).

How much coverage to require a vendor to maintain?

Jeff Gordon’s Insurance Basics posting makes specific suggestions about coverages that a customer might want to request in a services contract.