FAR 52.228-7—Insurance-Liability to Third Persons.
Plain-English Summary
FAR 52.228-7, Insurance—Liability to Third Persons, sets the contractor’s insurance and risk-allocation obligations for contracts where the Government wants protection against third-party claims arising from contract performance. It covers the types of insurance the contractor must carry, including workers’ compensation, employer’s liability, comprehensive general liability, and comprehensive automobile liability, as well as any additional insurance the contracting officer requires. It also allows approved self-insurance for qualified contractors, gives the contracting officer control over the form, amount, period, and insurer approval, and requires disclosure and approval of other insurance maintained in connection with the contract when reimbursement is sought. The clause then explains when the Government will reimburse insurance costs and certain third-party liabilities, including the requirement that such liabilities arise from contract performance, be supported by final judgments or approved settlements, and involve property damage or death/bodily injury not otherwise excluded. It also addresses the availability of appropriated funds, exclusions for liabilities already assigned elsewhere in the contract, failures to insure, and willful misconduct or lack of good faith by senior management. Finally, it requires prompt notice to the contracting officer when claims arise, cooperation with Government and insurer counsel, and, in uninsured or underinsured claims, Government control or participation in settlement or defense. In practice, this clause is a major risk-management and reimbursement provision: it tells contractors what coverage they must maintain, what costs may be recoverable, when the Government can step into a claim, and where reimbursement stops.
Key Rules
Required insurance coverage
The contractor must maintain workers’ compensation, employer’s liability, comprehensive general liability, comprehensive automobile liability, and any other insurance the contracting officer requires. The contracting officer also controls the required form, amount, duration, and approved insurers.
Self-insurance only if approved
A contractor may use a self-insurance program only with contracting officer approval, and workers’ compensation self-insurance is allowed only if the contractor is qualified under applicable statutory authority. Self-insurance is not automatic and must be affirmatively accepted by the Government.
Other insurance must be disclosed
If the contractor maintains other insurance in connection with performance and seeks reimbursement for it, the contractor must submit that insurance for contracting officer approval as required. This gives the Government visibility into coverage that may affect reimbursement or risk allocation.
Reimbursement for allocable insurance costs
The Government will reimburse the reasonable cost of insurance that is allocable to the contract and required or approved under the clause. The cost must also be allowable under the contract’s cost principles and payment terms.
Reimbursement for certain third-party liabilities
The contractor may be reimbursed for certain third-party liabilities and related expenses not otherwise compensated by insurance or other means, even if the liability would otherwise be limited by cost or funds clauses. The liability must arise from contract performance and be supported by a final judgment or a settlement approved in writing by the Government.
Covered third-party losses
The reimbursable liabilities are limited to loss of or damage to third-party property, excluding property owned, occupied, used, rented, or in the contractor’s care, custody, or control, and to death or bodily injury. The clause does not cover every kind of claim or every category of property loss.
Availability of appropriated funds
The Government’s liability for reimbursable third-party claims depends on the availability of appropriated funds when the contingency occurs. The clause expressly disclaims any promise that Congress will later appropriate funds to cover deficiencies.
Important reimbursement exclusions
The contractor is not reimbursed for liabilities already assigned to the contractor elsewhere in the contract, for losses that should have been insured but were not, or for liabilities caused by willful misconduct or lack of good faith by senior management or equivalent responsible representatives.
Insurance cost still may be allowable
Even when liability reimbursement is barred under paragraph (e), the contractor may still recover the cost of insurance maintained in connection with the contract, other than insurance specifically required by this clause, if that cost is otherwise allowable under the Allowable Cost and Payment clause.
Claim notice and Government control
If an uninsured or underinsured claim is filed, the contractor must immediately notify the contracting officer, provide pertinent papers, and authorize Government collaboration with insurer counsel. If the claim is uninsured or not covered by bond, the Government may require authority to settle, defend, or take charge of the litigation, while the contractor may participate at its own expense.
Responsibilities
Contracting Officer
Specify or approve the required insurance types, amounts, periods, and insurers; approve any self-insurance program; decide what other insurance must be submitted for approval; approve settlements in writing when reimbursement is sought; and direct or participate in claim defense or settlement when the claim is uninsured or underinsured.
Contractor
Obtain and maintain the required insurance or approved self-insurance; ensure coverage is in the required form, amount, and duration; submit other relevant insurance for approval when reimbursement is sought; seek reimbursement only for allowable costs and covered liabilities; promptly notify the contracting officer of claims; provide claim documents; and cooperate with Government and insurer counsel.
Government
Reimburse allowable insurance costs and eligible third-party liabilities subject to contract terms and available appropriations; collaborate in defense or settlement when coverage is insufficient; and, when required, take charge of litigation involving uninsured or unbonded claims.
Insurance Carrier / Counsel
Defend or settle covered claims within the scope of the policy, coordinate with Government representatives when the claim exceeds coverage, and work with the contractor and Government as authorized under the clause.
Contractor’s Senior Management
Exercise good faith and avoid willful misconduct, because misconduct or bad faith by directors, officers, managers, superintendents, or equivalent representatives can bar reimbursement for resulting liabilities.
Practical Implications
Contractors should treat this clause as both a coverage requirement and a reimbursement gatekeeper: if the required insurance is missing, underapproved, or insufficient, the contractor may absorb the loss itself.
The contracting officer has significant discretion, so contractors should confirm required coverage early, especially for unusual work, vehicle use, or higher-risk operations.
Claims handling matters as much as coverage. Late notice, missing paperwork, or unauthorized settlements can jeopardize reimbursement and create disputes over who controls the defense.
The clause does not make the Government a blanket insurer. Reimbursement is limited to specific third-party losses, approved settlements or final judgments, and available appropriations.
Contractors should watch for exclusions tied to care, custody, or control property, because those losses are often significant on construction and service contracts but are not covered here.
Senior-management misconduct can defeat reimbursement, so internal controls, supervision, and documentation of good-faith decision-making are important.
When a claim is uninsured or underinsured, the Government may want to direct the defense, so contractors should be prepared for shared control and should coordinate closely with counsel and the contracting officer.
Official Regulatory Text
As prescribed in 28.311-1 , insert the following clause: Insurance-Liability to Third Persons (Mar 1996) (a) (1) Except as provided in paragraph (a)(2) of this clause, the Contractor shall provide and maintain workers’ compensation, employer’s liability, comprehensive general liability (bodily injury), comprehensive automobile liability (bodily injury and property damage) insurance, and such other insurance as the Contracting Officer may require under this contract. (2) The Contractor may, with the approval of the Contracting Officer, maintain a self-insurance program, provided that, with respect to workers’ compensation, the Contractor is qualified pursuant to statutory authority. (3) All insurance required by this paragraph shall be in a form and amount and for those periods as the Contracting Officer may require or approve and with insurers approved by the Contracting Officer. (b) The Contractor agrees to submit for the Contracting Officer’s approval, to the extent and in the manner required by the Contracting Officer, any other insurance that is maintained by the Contractor in connection with the performance of this contract and for which the Contractor seeks reimbursement. (c) The Contractor shall be reimbursed- (1) For that portion- (i) Of the reasonable cost of insurance allocable to this contract; and (ii) Required or approved under this clause; and (2) For certain liabilities (and expenses incidental to such liabilities) to third persons not compensated by insurance or otherwise without regard to and as an exception to the limitation of cost or the limitation of funds clause of this contract. These liabilities must arise out of the performance of this contract, whether or not caused by the negligence of the Contractor or of the Contractor’s agents, servants, or employees, and must be represented by final judgments or settlements approved in writing by the Government. These liabilities are for- (i) Loss of or damage to property (other than property owned, occupied, or used by the Contractor, rented to the Contractor, or in the care, custody, or control of the Contractor); or (ii) Death or bodily injury. (d) The Government’s liability under paragraph (c) of this clause is subject to the availability of appropriated funds at the time a contingency occurs. Nothing in this contract shall be construed as implying that the Congress will, at a later date, appropriate funds sufficient to meet deficiencies. (e) The Contractor shall not be reimbursed for liabilities (and expenses incidental to such liabilities)- (1) For which the Contractor is otherwise responsible under the express terms of any clause specified in the Schedule or elsewhere in the contract; (2) For which the Contractor has failed to insure or to maintain insurance as required by the Contracting Officer; or (3) That result from willful misconduct or lack of good faith on the part of any of the Contractor’s directors, officers, managers, superintendents, or other representatives who have supervision or direction of- (i) All or substantially all of the Contractor’s business; (ii) All or substantially all of the Contractor’s operations at any one plant or separate location in which this contract is being performed; or (iii) A separate and complete major industrial operation in connection with the performance of this contract. (f) The provisions of paragraph (e) of this clause shall not restrict the right of the Contractor to be reimbursed for the cost of insurance maintained by the Contractor in connection with the performance of this contract, other than insurance required in accordance with this clause; provided , that such cost is allowable under the Allowable Cost and Payment clause of this contract. (g) If any suit or action is filed or any claim is made against the Contractor, the cost and expense of which may be reimbursable to the Contractor under this contract, and the risk of which is then uninsured or is insured for less than the amount claimed, the Contractor shall- (1) Immediately notify the Contracting Officer and promptly furnish copies of all pertinent papers received; (2) Authorize Government representatives to collaborate with counsel for the insurance carrier in settling or defending the claim when the amount of the liability claimed exceeds the amount of coverage; and (3) Authorize Government representatives to settle or defend the claim and to represent the Contractor in or to take charge of any litigation, if required by the Government, when the liability is not insured or covered by bond. The Contractor may, at its own expense, be associated with the Government representatives in any such claim or litigation. (End of clause)