Insurance Requirements for Government Contractors
Government contracts routinely require contractors to maintain specific types and levels of insurance coverage as a condition of contract performance. FAR Subpart 28.3 establishes the framework for insurance requirements in federal contracts, and individual agencies frequently impose additional requirements based on the nature of the work, the risks involved, and the performance location.
This guide covers the major insurance types required of government contractors, typical minimum coverage levels, and the administrative requirements for maintaining compliant coverage.
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FAR 28.3 Insurance Requirements Overview
FAR Subpart 28.3 requires contracting officers to ensure that contractors maintain adequate insurance coverage during contract performance. The clause at FAR 52.228-5 (Insurance — Work on a Government Installation) is required in contracts that involve work on government installations and specifies minimum insurance types and amounts. FAR 52.228-7 applies to cost-reimbursement contracts and establishes broader insurance requirements because the government bears more risk under cost-type contracts.
The contracting officer has discretion to specify insurance requirements beyond the FAR minimums based on the nature and risk of the work. Construction contracts, contracts involving hazardous materials, contracts performed overseas, and contracts involving professional services frequently carry heightened insurance requirements. The contractor must provide evidence of required insurance coverage before beginning work and must maintain it throughout the performance period.
Required Insurance Types
Commercial General Liability (CGL)
CGL insurance covers bodily injury, property damage, and personal/advertising injury arising from the contractor's operations, products, and completed operations. This is the most universally required coverage for government contractors. Typical minimum limits range from $500,000 to $1,000,000 per occurrence and $1,000,000 to $2,000,000 aggregate, though contracts involving higher-risk activities may require $5,000,000 or more. The policy should include premises/operations, products/completed operations, contractual liability, and independent contractors coverage.
Workers' Compensation and Employer's Liability
Workers' compensation insurance is required by state law in all 50 states (with limited exceptions) and is a universal requirement for government contracts. The contractor must maintain workers' compensation coverage at statutory limits for the state(s) where work is performed. Employer's liability coverage, which is typically included with workers' compensation, must meet minimum limits of $100,000 per accident, $500,000 disease policy limit, and $100,000 disease per employee. Contracts involving work under the Defense Base Act (DBA) or Longshore and Harbor Workers' Compensation Act require specialized coverage.
Automobile Liability
Required when contract performance involves the use of motor vehicles on or off government installations. Coverage must include owned, hired, and non-owned vehicles. Typical minimum limits are $200,000 per person and $500,000 per occurrence for bodily injury, and $20,000 per occurrence for property damage, though combined single limits of $1,000,000 are increasingly common.
Professional Liability (Errors & Omissions)
Required for contracts involving professional services such as engineering, architecture, consulting, IT services, medical services, and financial advisory work. Professional liability (E&O) insurance covers claims arising from negligent acts, errors, or omissions in the performance of professional services. Typical minimum limits range from $1,000,000 to $5,000,000 depending on the contract value and nature of services.
Cyber Liability Insurance
Increasingly required for contracts involving the handling of sensitive government data, CUI (Controlled Unclassified Information), PII (Personally Identifiable Information), or PHI (Protected Health Information). Cyber liability policies cover data breach response costs, regulatory fines, network security liability, and business interruption from cyber events. Minimum limits typically range from $1,000,000 to $10,000,000 depending on the volume and sensitivity of data handled.
Minimum Coverage Levels by Contract Type
These are representative minimums. Individual contracts may require higher limits based on risk assessment. Umbrella or excess liability policies can be used to meet high aggregate requirements cost-effectively.
Government as Additional Insured
Many government contracts require the contractor to name the United States Government as an additional insured on its CGL and automobile liability policies. This gives the government direct rights under the policy for claims arising from the contractor's operations. The additional insured endorsement should be on a primary and non-contributory basis, meaning the contractor's policy responds first before any government self-insurance or other coverage.
The contractor should work with its insurance broker to obtain the appropriate additional insured endorsement. Standard ISO endorsements (CG 20 10 and CG 20 37) are commonly used, but the contracting officer may require specific endorsement language. The contractor should confirm that the additional insured endorsement does not create gaps in its own coverage and that its policy limits are sufficient to protect both the contractor's and the government's interests.
Self-Insurance and Certificates of Insurance
FAR 28.308 permits contractors to self-insure with the contracting officer's approval. Self-insurance programs must be approved in advance and must demonstrate that the contractor has adequate financial resources and risk management practices to cover potential losses. DCAA reviews self-insurance programs as part of its audit of contractor business systems. Large contractors with diversified operations and strong balance sheets may find self-insurance cost-effective for workers' compensation and general liability, but most small and mid-size contractors rely on commercial insurance markets.
Certificates of insurance are the standard evidence of coverage provided to the contracting officer. The certificate should identify the named insured, the policy number, the effective and expiration dates, the types and limits of coverage, and any additional insured status. ACORD Form 25 is the industry-standard certificate format. The contractor must provide updated certificates promptly upon policy renewal and must notify the contracting officer of any material changes, cancellations, or non-renewals. Failure to maintain required insurance coverage is a material breach that can result in contract termination for default.
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