I had a customer send me a docusign for purchase terms before sending an expected PO. One of the terms was that I would agree to purchase $1 million of general liability insurance and name them as additional beneficiary. Is this reasonable for a $1500 deal?
Also known as Professional Indemnity Insurance
$1M of coverage is a typical figure tossed out; $2M, $5M might be considered necessary for some circumstances. It is to cover a major stuff-up, like deleting their entire database; although might also cover an accident whilst working on their premises. I've never heard of anyone every making a claim; maybe for a fall which seems more practical, but not for the service.
It will depend on your country but, here in Australia, it is a common requirement, costing ~$600-$1200/year (2022).
The bit you say about 'name them as an additional beneficiary' is not something I have encountered however; the insurance comes with some paperwork, maybe a certificate, to show I have it paid up and current. If anyone really wants to sight it, I show it, but typically my signature on the form is all they actually follow up on.
An example pitch:
Professional Indemnity Insurance can protect you from some unique risks your business faces when giving advice or providing a service.
If it’s found you made a mistake that caused injury, damage or financial loss to your client, you could face legal fees and damages. Professional Indemnity Insurance is designed to cover these costs and stop them putting pressure on your business’s cash flow.
This protection is designed for businesses that give advice or provide a service. There are two types of cover, one for professionals and consultants (like accountants, graphic designers or fitness instructors) and one for IT and communications (like IT business analysts, IT hardware engineers or IT project managers).
Is it reasonable?
Yes. It doesn't matter how long the contract is for or how much it's worth. They have every right to protect their interests. A $1 million GLI/PLI is pretty common. My combined GLI/PLI policy costs me roughly $70.00 USD per month.
Also, it's doubtful they asked to be named as a beneficiary (because that's not how GLI policies work), they probably asked to be added as an additional insured to your policy, which is a pretty standard thing to do.
Additionally, along with your GLI policy you ought to have a PLI policy as well, if you don't already. GLI and PLI policies provide different types of protections. A GLI or a PLI alone isn't enough. You need both.
All in all, I don't see anything alarming about their request. This is a standard business practice, employed by countless businesses around the globe.
If you are referring to general liability insurance, sometimes called "trip and fall", it may be simply to protect the client from suit in the event you have a personal accident on their site. My assumption is similiar to that described on this link:https://www.investopedia.com/terms/l/liability_insurance.asp, which is that this kind of insurance does not refer to your work product. A work product would likely be covered by an "errors and omissions" policy. I suggest that you carefully reread the policy to see what it does and does not cover.
The amount is quite common. I would normally have cover 5 million PLI in UK for jobs, I did. (Contract risk analysis, if I screwed up , my client could be bankrupt and have major losses) However, I would always strenuously avoid ever adding the client as a named additional beneficiary. In one case I refused the job due to insistence on named additional beneficiary. That is somewhat more risky than the amount. The amount of cover was bought yearly and the fee depended on type of work.
It was extremely important that I only 'gave advice' and suggested alterations, albeit for one client I had a Veto on owners behalf, to order his project managers to avoid some jobs. Effectively they signed the contract but only after I gave written permission for the terms they agreed.
In many cases it was understanding the culture and litigation mind of their client (usually in 'awkward' law places).