Sunset Clause
A contractual provision that limits the time period during which a party can make a claim for indemnification or require insurance coverage after the completion of work, typically ranging from 2 to 10 years.
Overview
A Sunset Clause sets a deadline after project completion beyond which no new claims can be brought under the contract's indemnification provisions. Without a sunset clause, the obligation to indemnify and maintain insurance could theoretically last indefinitely. For vendors, sunset clauses limit their long-term insurance obligations. For property owners, they define the window during which risk transfer remains active.
Connection to Insurance
The sunset clause period should align with the vendor's insurance obligations. If your contract requires a vendor to maintain Completed Operations coverage for 3 years after project completion, the sunset clause should not expire before that period. Similarly, if the vendor carries a claims-made policy, the sunset clause should not exceed the Extended Reporting Period available under their policy.
Typical Periods
Sunset periods vary by industry and risk profile. Commercial construction contracts commonly specify 5 to 10 years, aligning with statutes of repose. Professional services contracts typically use 2 to 3 years. The period should reflect the realistic timeframe during which latent defects or injuries from the vendor's work might be discovered.
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