Insurance clause in a commercial contract: what to check

Stage 1: find every insurance obligation in the contract

Insurance obligations rarely sit in one clause. They are spread across the indemnity clause, the insurance clause, the definitions and the schedules. Collect them before reviewing any single term.

1. Read the insurance clause and list every cover named.
2. Read the indemnity clause. An indemnity defines what the business promises to pay; insurance funds part of it.
3. Read the limitation of liability clause. Check whether insurance proceeds sit inside or outside the cap.
4. Check the schedules and appendices for minimum limits and named parties.
5. Check the term and termination clauses for how long cover must continue.

Government construction contracts usually use the Public Sector Standard Conditions of Contract. The 8th edition for construction works dates from July 2020, and a PSSCOC-lite edition was issued in March 2025. Both carry insurance obligations for the works, third-party liability and work injury compensation. Private contracts often borrow from these forms but change limits and endorsements.

Stage 2: check each requirement against cover held

Map each requirement to a policy. A table of requirement, current policy and gap is the clearest record.

1. Cover type. Confirm a policy exists for each named cover, under the name the insurer uses.
2. Limit. Compare the required limit with the policy limit. Check whether the contract says "per occurrence" or "in the aggregate".
3. Insured value. Where the contract requires property or works to be insured for full value, confirm the sum insured reaches it. Section 81 of the Marine Insurance Act 1906 states the principle that an assured insured below value carries the uninsured balance. Property policies apply the same rule through an average condition.
4. Excess. Some contracts cap the excess the business may carry.
5. Territory and jurisdiction. The policy must respond where the work is done and where claims may be brought.
6. Period. Cover must run for the contract term plus any stated post-completion period.

Where a limit falls short, the options are to raise the policy limit, buy an excess layer above it, or negotiate the requirement down.

Stage 3: check the endorsement terms

The terms below change who the policy protects. Each needs the insurer's agreement by endorsement.

1. Joint names. The counterparty becomes a co-insured on the policy. A claim by one party against the other may then be restricted unless a cross-liability clause applies.
2. Additional insured. The counterparty is covered for liability arising from the business's work, usually not for its own acts.
3. Interested party or loss payee. The counterparty is noted and may receive claim proceeds, common with lenders and landlords.
4. Waiver of subrogation. The insurer gives up its right to recover a paid claim from the counterparty. Some insurers grant this on request; others charge or decline.
5. Primary and non-contributory. The business's policy pays before the counterparty's own policy.
6. Notice of cancellation. The insurer agrees to notify the counterparty before cancelling.

The Contracts (Rights of Third Parties) Act 2001 lets a named third party enforce a contract term made for its benefit, unless the contract excludes that right. A counterparty may therefore enforce insurance promises directly. Check whether the contract excludes the Act.

Stage 4: check how long cover must continue

Liability can outlast the contract. The Limitation Act 1959 gives 6 years to sue in contract or tort from when the cause of action accrues. Latent-damage provisions can extend that further. A claim may arrive years after the work was finished.

Two policy structures handle this differently:

1. Occurrence-based policies, such as most public liability covers, respond to injury or damage occurring during the policy period. Cover must be in force when the event happens.
2. Claims-made policies, such as professional indemnity, respond to claims first made during the policy period. Cover must be in force when the claim arrives, with a retroactive date that reaches back to the work.

A clause requiring professional indemnity for 6 years after completion requires the business to renew every year for 6 years. The retroactive date must not move. The mechanics are set out in professional indemnity: claims-made and retroactive date.

Stage 5: respond and keep evidence

When a requirement cannot be met, raise it before signing. Counterparties usually accept a reasonable amendment more readily before execution than after.

1. Propose an amended limit or cover type, supported by the broker's note of what the market offers.
2. Ask for the requirement to be "subject to availability on reasonable commercial terms".
3. Replace a waiver of subrogation with one limited to losses the counterparty did not cause.
4. Agree a cap on post-completion cover periods that matches the business's renewal plans.
5. Record the agreed requirements in a schedule and send it to the broker.

Insurance brokers in Singapore must be registered by MAS under the Insurance Act 1966. The broker should confirm in writing which endorsements the insurer has agreed. Certificates issued against the contract should then quote those endorsements.

Checklist

1. Collect every insurance and indemnity obligation from the contract and schedules.
2. List each required cover type and limit.
3. Note whether each limit is per occurrence or aggregate.
4. Compare each requirement with the policy held.
5. Confirm property and works sums insured reach full value.
6. Check excess caps, territory and jurisdiction.
7. Identify joint names, additional insured or loss payee wording.
8. Ask the insurer whether it will grant any waiver of subrogation.
9. Check primary and non-contributory and notice of cancellation terms.
10. Check whether the contract excludes the Contracts (Rights of Third Parties) Act 2001.
11. Note how long cover must run after completion.
12. For claims-made covers, keep the retroactive date fixed across renewals.
13. Negotiate any requirement the market cannot meet before signing.
14. Send the agreed schedule to the broker and file the endorsements and certificates.

Frequently asked questions

What does "insure in joint names" mean for my policy?

The counterparty becomes a co-insured alongside the business. Both can claim under the policy for their interest. Without a cross-liability clause, a claim by one joint insured against the other may be excluded, so ask for one.

Can I agree to waive subrogation?

Only if the insurer agrees by endorsement. Agreeing a waiver in the contract without the insurer's consent can prejudice the insurer's recovery rights and the business's claim. Ask the broker before signing.

What limit should I accept when a client asks for S$5 million?

Accept the limit only if the policy holds it or the insurer will raise it. Otherwise propose the limit held, or arrange an excess layer above the primary policy. Check whether S$5 million is per occurrence or aggregate, because the cost differs.

Who checks that the counterparty's insurance exists?

The party relying on the insurance. Ask for a certificate, verify the insurer and broker in the MAS Financial Institutions Directory, and confirm the policy directly with the insurer. Diary each expiry date and request renewal evidence before it lapses.

Sources

• Singapore Statutes Online: Contracts (Rights of Third Parties) Act 2001
• Singapore Statutes Online: Limitation Act 1959
• Singapore Statutes Online: Marine Insurance Act 1906
• Building and Construction Authority: Public Sector Standard Conditions of Contract
• Monetary Authority of Singapore: insurance broker registration and approval
• Monetary Authority of Singapore: Financial Institutions Directory