Subpart 28.3 - Insurance

Parent topic: Part 28 - Bonds and Insurance

28.301 Policy.

Contractors shall carry insurance under the following circumstances:

(a)

(1) The Government requires any contractor subject to Cost Accounting Standard (CAS) 416 (48 CFR

9004.416) to obtain insurance, by purchase or self-coverage, for the perils to which the contractor is

exposed, except when-

(i) The Government, by providing in the contract in accordance with law, agrees to indemnify the

contractor under specified circumstances; or

(ii) The contract specifically relieves the contractor of liability for loss of or damage to Government

property.

(2) The Government reserves the right to disapprove the purchase of any insurance coverage not in

the Government’s interest.

(3) Allowability of the insurance program’s cost shall be determined in accordance with the criteria

in 31.205-19.

(b) Contractors, whether or not their contracts are subject to CAS 416, are required by law and this

regulation to provide insurance for certain types of perils (e.g., workers’ compensation). Insurance is

mandatory also when commingling of property, type of operation, circumstances of ownership, or

condition of the contract make it necessary for the protection of the Government. The minimum

amounts of insurance required by this regulation (see 28.307-2) may be reduced when a contract is

to be performed outside the United States and its outlying areas. When more than one agency is

involved, the agency responsible for review and approval of a contractor’s insurance program shall

coordinate with other interested agencies before acting on significant insurance matters.

(c) Contractors awarded nonpersonal services contracts for health care services are required to

maintain medical liability insurance and indemnify the Government for liability producing acts or

omissions by the contractor, its employees and agents (see 37.400).

28.302 Notice of cancellation or change.

When the Government requires the contractor to provide insurance coverage, the policies shall

contain an endorsement that any cancellation or material change in the coverage adversely affecting

the Government’s interest shall not be effective unless the insurer or the contractor gives written

notice of cancellation or change as required by the contracting officer. When the coverage is

provided by self-insurance, the contractor shall not change or decrease the coverage without the

administrative contracting officer’s prior approval (see 28.308(c)).
28.303 Insurance against loss of or damage to Government

property.

When the Government requires or approves insurance to cover loss of or damage to Government

property (see 45.104, Responsibility and liability for Government property), it may be provided by

specific insurance policies or by inclusion of the risks in the contractor’s existing policies. The

policies shall disclose the Government’s interest in the property.

28.304 Risk-pooling arrangements.

Agencies may establish risk-pooling arrangements. These arrangements are designed to use the

services of the insurance industry for safety engineering and the handling of claims at minimum cost

to the Government. The agency responsible shall appoint a single manager or point of contact for

each arrangement.

28.305 Overseas workers’ compensation and war-hazard

insurance.

(a) "Public-work contract," as used in this subpart, means any contract for a fixed improvement or

for any other project, fixed or not, for the public use of the United States or its allies, involving

construction, alteration, removal, or repair, including projects or operations under service contracts

and projects in connection with the national defense or with war activities, dredging, harbor

improvements, dams, roadways, and housing, as well as preparatory and ancillary work in

connection therewith at the site or on the project.

(b) The Defense Base Act (42 U.S.C.1651, etseq.) extends the Longshoremen’s and Harbor Workers’

Compensation Act (33 U.S.C.901) to various classes of employees working outside the United States,

including those engaged in performing-

(1) Public-work contracts; or

(2) Contracts approved or financed under the Foreign Assistance Act of1961 (Pub.L.87-195) other

than-

(i) Contracts approved or financed by the Development Loan Fund (unless the Secretary of Labor,

acting upon the recommendation of a department or agency, determines that such contracts should

be covered); or

(ii) Contracts exclusively for materials or supplies.

(c) When the Defense Base Act applies (see 42 U.S.C.1651, etseq.) to these employees, the benefits

of the Longshoremen’s and Harbor Workers’ Compensation Act are extended through operation of

the War Hazards Compensation Act (42 U.S.C.1701, etseq.) to protect the employees against the risk

of war hazards (injury, death, capture, or detention). When, by means of an insurance policy or a

self-insurance program, the contractor provides the workers’ compensation coverage required by

the Defense Base Act, the contractor’s employees automatically receive war-hazard risk protection.
(d) When the agency head recommends a waiver to the Secretary of Labor, the Secretary may waive

the applicability of the Defense Base Act to any contract, subcontract, work location, or classification

of employees.

(e) If the Defense Base Act is waived for some or all of the contractor’s employees, the benefits of

the War Hazards Compensation Act are automatically waived with respect to those employees for

whom the Defense Base Act is waived. For those employees, the contractor shall provide workers’

compensation coverage against the risk of work injury or death and assume liability toward the

employees and their beneficiaries for war-hazard injury, death, capture, or detention. The contract

shall provide either that the costs of this liability or the reasonable costs of insurance against this

liability shall be allowed as a cost under the contract.

28.306 Insurance under fixed-price contracts.

(a) General. Although the Government is not ordinarily concerned with the contractor’s insurance

coverage if the contract is a fixed-price contract, in special circumstances agencies may specify

insurance requirements under fixed-price contracts. Examples of such circumstances include the

following:

(1) The contractor is, or has a separate operation, engaged principally in Government work.

(2) Government property is involved.

(3) The work is to be performed on a Government installation.

(4) The Government elects to assume risks for which the contractor ordinarily obtains commercial

insurance.

(b) Work on a Government installation.

(1) When the clause at 52.228-5, Insurance-Work on a Government Installation, is required to be

included in a fixed-price contract by 28.310, the coverage specified in 28.307 is the minimum

insurance required and shall be included in the contract Schedule or elsewhere in the contract. The

contracting officer may require additional coverage and higher limits.

(2) When the clause at 52.228-5, Insurance-Work on a Government Installation, is not required by

28.310 but is included because the contracting officer considers it to be in the Government’s interest

to do so, any of the types of insurance specified in 28.307 may be omitted or the limits may be

lowered, if appropriate.

28.307 Insurance under cost-reimbursement contracts.

Cost-reimbursement contracts (and subcontracts, if the terms of the prime contract are extended to

the subcontract) ordinarily require the types of insurance listed in 28.307-2, with the minimum

amounts of liability indicated. (See 28.308 for self-insurance.)
28.307-1 Group insurance plans.

(a) Prior approval requirement. Under cost-reimbursement contracts, before buying insurance under

a group insurance plan, the contractor must submit the plan for approval, in accordance with agency

regulations. Any change in benefits provided under an approved plan that can reasonably be

expected to increase significantly the cost to the Government requires similar approval.

(b) Premium refunds or credits. The plan shall provide for the Government to share in any premium

refunds or credits paid or otherwise allowed to the contractor. In determining the extent of the

Government’s share in any premium refunds or credits, any special reserves and other refunds to

which the contractor may be entitled in the future shall be taken into account.

28.307-2 Liability.

(a) Workers’ compensation and employer’s liability. Contractors are required to comply with

applicable Federal and State workers’ compensation and occupational disease statutes. If

occupational diseases are not compensable under those statutes, they shall be covered under the

employer’s liability section of the insurance policy, except when contract operations are so

commingled with a contractor’s commercial operations that it would not be practical to require this

coverage. Employer’s liability coverage of at least $100,000 shall be required, except in States with

exclusive or monopolistic funds that do not permit workers’ compensation to be written by private

carriers. (See 28.305(c) for treatment of contracts subject to the Defense Base Act.)

(b) General liability.

(1) The contracting officer shall require bodily injury liability insurance coverage written on the

comprehensive form of policy of at least $500,000 per occurrence.

(2) Property damage liability insurance shall be required only in special circumstances as

determined by the agency.

(c) Automobile liability. The contracting officer shall require automobile liability insurance written

on the comprehensive form of policy. The policy shall provide for bodily injury and property damage

liability covering the operation of all automobiles used in connection with performing the contract.

Policies covering automobiles operated in the United States shall provide coverage of at least

$200,000 per person and $500,000 per occurrence for bodily injury and $20,000 per occurrence for

property damage. The amount of liability coverage on other policies shall be commensurate with any

legal requirements of the locality and sufficient to meet normal and customary claims.

(d) Aircraft public and passenger liability. When aircraft are used in connection with performing the

contract, the contracting officer shall require aircraft public and passenger liability insurance.

Coverage shall be at least $200,000 per person and $500,000 per occurrence for bodily injury, other

than passenger liability, and $200,000 per occurrence for property damage. Coverage for passenger

liability bodily injury shall be at least $200,000 multiplied by the number of seats or passengers,

whichever is greater.

(e) Vessel liability. When contract performance involves use of vessels, the contracting officer shall

require, as determined by the agency, vessel collision liability and protection and indemnity liability

insurance.
28.308 Self-insurance.

(a) When it is anticipated that 50 percent or more of the self-insurance costs to be incurred at a

segment of a contractor’s business will be allocable to negotiated Government contracts, and the

self-insurance costs at the segment for the contractor’s fiscal year are expected to be $200,000 or

more, the contractor shall submit, in writing, information on its proposed self-insurance program to

the administrative contracting officer and obtain that official’s approval of the program. The

submission shall be by segment or segments of the contractor’s business to which the program

applies and shall include-

(1) A complete description of the program, including any resolution of the board of directors

authorizing and adopting coverage, including types of risks, limits of coverage, assignments of safety

and loss control, and legal service responsibilities;

(2) If available, the corporate insurance manual and organization chart detailing fiscal

responsibilities for insurance;

(3) The terms regarding insurance coverage for any Government property;

(4) The contractor’s latest financial statements;

(5) Any self-insurance feasibility studies or insurance market surveys reporting comparative

alternatives;

(6) Loss history, premiums history, and industry ratios;

(7) A formula for establishing reserves, including percentage variations between losses paid and

losses reserved;

(8) Claims administration policy, practices, and procedures;

(9) The method of calculating the projected average loss; and

(10) A disclosure of all captive insurance company and reinsurance agreements, including methods

of computing cost.

(b) Programs of self-insurance covering a contractor’s insurable risks, including the deductible

portion of purchased insurance, may be approved when examination of a program indicates that its

application is in the Government’s interest. Agencies shall not approve a program of self-insurance

for workers’ compensation in a jurisdiction where workers’ compensation does not completely cover

the employer’s liability to employees, unless the contractor-

(1) Maintains an approved program of self-insurance for any employer’s liability not so covered; or

(2) Shows that the combined cost to the Government of self-insurance for workers’ compensation

and commercial insurance for employer’s liability will not exceed the cost of covering both kinds of

risk by commercial insurance.

(c) Once the administrative contracting officer has approved a program, the contractor must submit

to that official for approval any major proposed changes to the program. Any program approval may

be withdrawn if a contracting officer finds that either-
(1) Any part of a program does not comply with the requirements of this subpart and/or the criteria

at 31.205-19; or

(2) Conditions or situations existing at the time of approval that were a basis for original approval of

the program have changed to the extent that a program change is necessary.

(d) To qualify for a self-insurance program, a contractor must demonstrate ability to sustain the

potential losses involved. In making the determination, the contracting officer shall consider the

following factors:

(1) The soundness of the contractor’s financial condition, including available lines of credit.

(2) The geographic dispersion of assets, so that the potential of a single loss depleting all the assets

is unlikely.

(3) The history of previous losses, including frequency of occurrence and the financial impact of each

loss.

(4) The type and magnitude of risk, such as minor coverage for the deductible portion of purchased

insurance or major coverage for hazardous risks.

(5) The contractor’s compliance with Federal and State laws and regulations.

(e) Agencies shall not approve a program of self-insurance for catastrophic risks (e.g., see 50.104-3,

Special procedures for unusually hazardous or nuclear risks). Should performance of Government

contracts create the risk of catastrophic losses, the Government may, to the extent authorized by

law, agree to indemnify the contractor or recognize an appropriate share of premiums for purchased

insurance, or both.

(f) Self-insurance programs to protect a contractor against the costs of correcting its own defects in

materials or workmanship shall not be approved. For these purposes, normal rework estimates and

warranty costs will not be considered self-insurance.

28.309 Contract clauses for workers’ compensation

insurance.

(a) The contracting officer shall insert the clause at 52.228-3, Workers’ Compensation Insurance

(Defense Base Act), in solicitations and contracts when the Defense Base Act applies (see 28.305)

and-

(1) The contract will be a public-work contract performed outside the United States; or

(2) The contract will be approved or financed under the Foreign Assistance Act of1961

(Pub.L.87-195) and is not excluded by 28.305(b)(2).

(b) The contracting officer shall insert the clause at 52.228-4, Worker’s Compensation and WarHazard Insurance Overseas, in solicitations and contracts when the contract will be a public-work

contract performed outside the United States and the Secretary of Labor waives the applicability of

the Defense Base Act (see 28.305(d)).
28.310 Contract clause for work on a Government

installation.

(a) Insert the clause at 52.228-5, Insurance-Work on a Government Installation, in solicitations and

contracts if a fixed-price contract is contemplated, the contract amount is expected to exceed the

simplified acquisition threshold, and the contract will require work on a Government installation,

unless-

(1) Only a small amount of work is required on the Government installation (e.g.,a few brief visits

permonth); or

(2) All work on the Government installation will be performed outside the United States and its

outlying areas.

(b) The contracting officer may insert the clause at 52.228-5 in solicitations and contracts described

in paragraphs (a)(1) and (2) of this section if it is in the Government’s interest to do so.

28.311 Solicitation provision and contract clause on liability

insurance under cost-reimbursement contracts.

28.311-1 Contract clause.

In accordance with agency acquisition regulations, the contracting officer shall insert the clause at

52.228-7, Insurance-Liability to Third Persons, in solicitations and contracts, other than those for

construction contracts and those for architect-engineer services, when a cost-reimbursement

contract is contemplated.

28.311-2 Agency solicitation provisions and contract clauses.

Agencies may prescribe their own solicitation provisions and contract clauses to implement the basic

policies contained in this subpart 28.3.

28.312 Contract clause for insurance of leased motor

vehicles.

The contracting officer shall insert the clause at 52.228-8, Liability and Insurance-Leased Motor

Vehicles, in solicitations and contracts for the leasing of motor vehicles (see subpart 8.11).

28.313 Contract clauses for insurance of transportation or
transportation-related services.

(a) The contracting officer shall insert the clause at 52.228-9, Cargo Insurance, in solicitations and

contracts for transportation or for transportation-related services, except when freight is shipped

under rates subject to released or declared value.

(b) The contracting officer shall insert a clause substantially the same as that at 52.228-10,

Vehicular and General Public Liability Insurance, in solicitations and contracts for transportation or

for transportation-related services when the contracting officer determines that vehicular liability or

general public liability insurance required by law is not sufficient.