What Insurance Do You Need Before Signing a Distribution Agreement for Your Medical Device?

A medical device distribution agreement almost always requires the manufacturer to carry specific insurance, name the distributor as an additional insured, and sometimes meet per-occurrence limits that exceed a startup’s existing program. Device companies close distribution deals on the commercial terms and then discover the insurance requirements in the final contract review, when the deal is waiting on a certificate. The requirements were written by the distributor’s counsel to close the distributor’s exposure, and your program has to match what you agreed to.

Why a Distribution Agreement Raises the Insurance Bar

Signing a distributor expands two exposures at once. The geographic exposure grows, because the device now reaches markets and customers the manufacturer does not directly control. The operational exposure grows, because another party is handling, storing, and selling the product. The distributor knows this, so its agreement pushes risk back to the manufacturer through the insurance clause: the manufacturer must carry products liability at stated limits, name the distributor as an additional insured, and often provide a waiver of subrogation and a notice-of-cancellation provision. These are conditions of the deal, not negotiable preferences, the same gating dynamic that governs what coverage a company needs before an enterprise contract, here on the device side.

The manufacturer remains the party the products liability attaches to, because it is named on the clearance, so the distributor wants to sit under the manufacturer’s policy for claims arising from the product it sells. That is what the additional insured requirement does.

The Requirements That Trip Manufacturers Up

The first is the products liability limit. Distributors often require a per-occurrence limit higher than an early-stage device company carries, sized to the distributor’s sense of the exposure across its customer base, not the manufacturer’s own comfort. The second is additional insured status: agreeing to name the distributor and actually holding a policy that provides that status, on the terms the contract words, are different things, the same mechanism behind an additional insured endorsement that the policy has to actually provide. The endorsement has to exist and its scope has to match, or the distributor’s protection is illusory at claim.

International distribution adds a third. A distributor selling the device into other markets pulls in foreign-jurisdiction exposure, and a US-only program may not respond to a claim brought abroad, the gap covered in what the EU MDR means for a US device company’s insurance. When the distribution agreement crosses the US border, the policy territory becomes its own question, covered in whether your US device insurance reaches international distribution. The agreement’s territory has to match the program’s territory.

How the Program Has to Be Structured

The core line is products liability written for the device, sized to the limit the agreement requires and endorsed to add the distributor as an additional insured with the right scope. Where the manufacturer also provides installation, calibration, or software with the device, errors and omissions has to be coordinated so a service-related claim is answered too. The fuller commercial-stage program these fit into is mapped in Class II device insurance before commercialization. The point is to build the program to the agreement rather than discover the gap in the redline.

The certificate is the last step, not the coverage. A certificate naming the distributor as an additional insured is evidence; the endorsement on the policy is what creates the grant, and that is what should be confirmed before signing.

What to Do Now

When a distribution agreement is in view, get the insurance exhibit to your broker early, while the deal is still in negotiation. Confirm the products liability limit meets the per-occurrence requirement, that your policy can add the distributor as an additional insured on the terms the contract words, and that the territory covers everywhere the distributor will sell. If the agreement reaches foreign markets, confirm the program responds there. Then have the certificate issued to match, not as a placeholder.

Before you sign a distribution agreement, confirm your program meets its insurance terms on limits, endorsements, and territory. A specialty review through Tower Street Insurance can align a device manufacturer’s coverage to what its distribution agreements actually require.