Can a CDMO share insurance with its sponsor under the MSA?

Sponsor MSAs require the CDMO to carry independent insurance for the same reason any commercial customer requires its supplier to carry insurance: the sponsor needs an independent source of recovery if the CDMO causes a loss. Shared insurance defeats this purpose because the sponsor's recourse would be limited to the same policy that the CDMO's recovery flows from.

In practice, sponsor MSAs require the CDMO to name the sponsor as additional insured on the CDMO's policies, which gives the sponsor direct rights against the CDMO's insurance carrier. This is functionally the closest thing to "shared insurance" available under traditional structures — the sponsor benefits from the CDMO's policy without the CDMO benefiting from the sponsor's policy.

Owner-controlled insurance programs are common in construction (a project owner places insurance covering all contractors and subcontractors on the project) and rare in pharma contract manufacturing. They exist in concept — a pharma sponsor could place a program covering all of its CDMOs on a single sponsor-controlled policy — but the economic and administrative burden has kept them uncommon.

A few large pharma sponsors have explored OCIP-style structures for specific high-volume contract manufacturing relationships. The arrangements typically apply only to a single CDMO relationship at a time and supplement rather than replace the CDMO's underlying program.

A separate concept that sometimes gets confused with "shared insurance" is group purchasing — CDMOs collectively purchasing insurance through an industry association or buying group. Group purchasing structures exist (Pharma & BioPharma Outsourcing Association programs, etc.) and can produce favorable pricing for participating CDMOs, but they do not share the policy with sponsors. Each CDMO is still a separate named insured.

Rather than asking to share insurance, CDMOs sometimes negotiate the following accommodations from sponsors: (1) reciprocal additional insured wording on the sponsor's policies for sponsor-caused exposures (rare in practice but occasionally available), (2) mutual indemnity with caps aligned to insurance limits, (3) sponsor provision of clinical trial liability for trials the sponsor is conducting (standard), and (4) sponsor provision of cargo insurance for sponsor-owned inventory in CDMO custody (negotiable).

These accommodations do not share the CDMO's policy with the sponsor; they ensure the sponsor's policies respond to sponsor-caused exposures rather than pushing all risk onto the CDMO's program.

For nearly all pharma contract manufacturing relationships, the standard structure is: CDMO carries independent CGL, products, workers comp, auto, umbrella, and where applicable professional liability/E&O, with the sponsor named as additional insured. Sponsor carries its own clinical trial liability, D&O, cyber, and other lines covering sponsor exposures, with the CDMO sometimes named as additional insured where MSA terms warrant.

CDMOs that propose to "share" insurance with a sponsor in MSA negotiation typically encounter immediate sponsor pushback. The conversation that produces actual program savings is about which exposures sit on which party's policy, with both parties carrying independent programs.