Quick Tip #6: Does a supplier’s insurance cover extend for long enough?
Commercial contracts normally require one of the contracting parties to provide insurance. If, for example, a supplier is providing services to a customer, the customer will often require the supplier to carry sufficient insurance to cover its liabilities under the contract. The term for which a party provides insurance is always up for negotiation but it’s generally prudent for the insurance to not only cover the duration of the agreement but also a period after termination of the agreement. This is because claims may arise after the agreement has been terminated. The duration of this insured period (after the termination of the agreement) should also be adequate to deal with when potential claims may arise. One option would be to align it with the period of prescription/limitation depending on your jurisdiction (e.g. at least three years in South Africa and six years in England). However, the likelihood of a claim declines over time after the term, and there is therefore some flexibility in negotiating a shorter period of time than the prescription/limitation period. It’s also important to ensure that the insurance clause itself continues to be enforceable after termination of the agreement so make sure it is referred to in your survival clause.