One of the most common questions that comes up during deal negotiations is deceptively simple:
“What insurance should we require the other side to have?”
Many companies mistakenly treating contractual insurance requirements as boilerplate. In reality, they should be tailored to the actual risk profile of the deal.
Here are six foundational questions that help guide that analysis.
1. What Kind of Deal Is This?
Start with the basics.
Who is providing products or services? And to whom?
Depending on the answer, relevant coverage may include:
- Commercial general liability
- Errors & omissions (professional liability)
- Product liability or product recall
- Media liability
- Cyber liability
The nature of the transaction should always dictate the insurance.
2. How Are Products or Services Delivered?
Risk often lives in logistics.
- Physical delivery may require auto or trucking insurance
- Storage or warehousing may require warehouseman’s liability or property coverage
- Electronic delivery or storage makes cyber insurance essential.
If something can be dropped, damaged, destroyed, or stolen, then insurance should follow that risk.
3. Will Employees Be On-Site?
If your employees will be at their locations (or theirs at yours), you need to think beyond the contract language.
Workers’ compensation, employment practices liability, and premises risks can quickly become intertwined.
4. Is There a Data or Systems Touchpoint?
Any time a counterparty accesses:
- Networks
- Systems
- Confidential or proprietary information
Cyber insurance should be mandatory. A data incident doesn’t stay neatly contained to one party.
5. How Large Is the Risk?
Severity matters.
Higher-risk relationships may justify:
- Umbrella coverage
- Excess insurance layers
- Higher primary limits
Insurance should reflect worst-case exposure, not best-case assumptions.
6. How Financially Strong Is the Counterparty?
If your business partner couldn’t realistically pay for a significant loss out of pocket, insurance limits become even more critical.
Insurance often serves as the real balance sheet behind the deal.
Final Thought
This list provides a disciplined baseline to ensure your contractual insurance requirements actually align with business risk. It is not exhaustive, but is a good starting point.
Lists like these avoid the coverage gaps that often accompany boilerplate contracting.
