Types of CLIPs
Depending on how they are structured, CLIPs can reimburse a company for its own contractual liabilities, protect a customer from the company’s failure to perform, or provide excess protection above collateralized reserves.
1. Full Reimbursement CLIP
A full reimbursement CLIP protects the company (the “obligor”) that makes a promise or guarantee to its customers.
If the company must perform under a covered contract - such as a service contract, membership program, or warranty - the policy reimburses the obligor for those costs.
This structure is common in the warranty and extended-service market and is often required by state regulators to ensure that customer commitments are backed by insurance rather than unfunded liabilities.
In essence, it functions as a financial backstop for the company’s obligations to its customers.
2. Failure-to-Perform CLIP
A failure-to-perform CLIP shifts the focus from the company to the customer.
In this model, the insurer agrees to indemnify or pay the customer (the “beneficiary”) directly if the insured company fails to meet a defined contractual obligation.
This version is increasingly used in technology, fintech, and logistics sectors - anywhere a company offers a public “insured commitment” or “guaranteed result.”
The coverage responds only to fortuitous events, not pure credit or market risk, making it a compliant and insurable form of performance protection.
3. Excess-Coverage CLIP
An excess-coverage CLIP provides protection above a defined attachment point or self-insured retention, operating much like an excess layer in traditional insurance.
It is typically used when a company has already collateralized a portion of the risk - through a trust, escrow, or captive - and wants to transfer only the tail exposure to an insurer or reinsurer.
This approach is common in larger structured programs or when regulators require the company to retain a certain level of risk participation.
It enables scalability by allowing a company to leverage its existing reserves while still achieving regulatory compliance and capital efficiency.
Importance of Claims Handling
The value of a CLIP isn’t just in the policy - it’s in how claims are handled.
Because CLIPs often respond to unconventional triggers like refunds, indemnities, or performance guarantees, you need a carrier that understands nuance, speed, and context.
Why Claims Handling Matters:
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Non-traditional triggers: CLIP claims aren't always tied to lawsuits. They may arise from internal refund obligations or failed service commitments.
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Speed and sensitivity: These claims often involve active customers or partners. A slow or adversarial process can hurt your brand.
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Interpretation of contracts: Success depends on how well your policy aligns with real-world contract language. Your broker and carrier must speak both insurance and legal fluently.
At URM, we don't just help you buy coverage - we help ensure it responds when you need it most.
CLIP stands for Contractual Liability Insurance Policy. It covers the obligations you agree to in a contract - like guarantees, warranties, or indemnities.
CLIPs protect companies from liabilities they've agreed to in contracts - especially indemnity and hold harmless clauses. It ensures you're covered when you're legally responsible for someone else's damages due to a signed agreement.
Target Buyers: SaaS companies, startups, vendors, defense contractors, manufacturing firms, and PE-backed portfolio companies.
Most companies assume their existing liability policies will cover everything in their contracts. They won’t. A CLIP steps in when you’ve signed an indemnity or warranty - and then something goes wrong.
Key Benefits:
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Covers liabilities assumed in contracts (often excluded from GL or E&O)
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Enables risk transfer for warranties, service guarantees, and refunds
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Can unlock new revenue models by insuring customer-facing promises
CLIP Use Cases / Examples
Tech MSA Risk:
A SaaS firm signs a master service agreement requiring full indemnity for outages. CLIP responds if the outage leads to downstream losses.
PE Portfolio Lease Guarantee:
A portfolio company guarantees a lease for its sub-entity. CLIP covers the liability if the parent is pulled into a claim.
Embedded Insurance Model:
A company offers service guarantees or reimbursements at scale. A CLIP converts that risk into a policy.
Regulatory Trigger:
A state agency reclassifies a platform promise as insurance - requiring a CLIP.
Refund Exposure in API Contracts:
A fintech or SaaS platform agrees to refund customers if API usage thresholds aren't met or fail to deliver expected service levels. A CLIP can cover the financial liability associated with those refunds.
When a covered event occurs, a CLIP policy reimburses the insured for the financial obligation they’ve assumed through contract. These claims are often non-traditional, meaning the trigger isn’t an injury or property damage - it’s a financial promise.
CLIP Claims Process
Step-by-Step Claim Flow:
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Trigger Event: A customer invokes a refund, indemnity, or warranty promise.
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Proof of Obligation: The insured demonstrates the triggering contract clause.
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Claim Submission: The company files a claim with the CLIP carrier.
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Carrier Review: The insurer verifies the event qualifies under the contract and policy terms.
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Payment or Defense: The insurer reimburses the insured for the payout, or funds a defense if applicable.
Unlike standard liability policies, CLIPs don’t always require a third-party lawsuit - the trigger is the insured’s own obligation to pay.
