When a craft beverage brand has its product made or packaged by another company, contract production splits one product’s risk between two companies, and neither party’s policy covers the other by default. Contract brewing (also called co-packing) and alternating proprietorships split the license, the product, and the liability differently. Two questions the model decides: who owns the product, and who holds the license.
Key Takeaways
- The contract production model decides who owns which risk.
- Contract brewing and alternating proprietorship differ on who holds the license and who holds title to the product, which changes who insures it and who is treated as the manufacturer if something goes wrong.
- A brand’s product sitting at a host or co-packer’s facility may not be covered by that company’s property policy, so the brand often needs its own coverage for product away from its premises. A Property Off-Premises extension is typically sublimited to around $10,000, which is well under real inventory value at a co-packer.
- Product liability can name both the brand on the label and the producer that made the product, so both parties carry exposure that the agreement allocates between them.
- Each party should require certificates of insurance and additional insured status from the other, running in both directions.
- A brand that depends on one producer can lose product and income if that facility is shut down. Standard business interruption does not cover that scenario, but contingent business interruption may.
What Contract Production Means in Craft Beverage
Contract production is any arrangement where a craft beverage brand’s product is made or packaged by another company. Contract brewing and alternating proprietorship are the two main forms, and they differ on who holds the license and who owns the product.
| Contract Brewing | Alternating Proprietorship | |
|---|---|---|
| Who holds the license | The producer (contract brewer / co-packer) | The tenant producer, under its own permit |
| Who holds title | The producer, until the brand removes the product | The tenant producer, at every stage |
| Who is the manufacturer of record | The producer | The tenant producer |
| Who handles records and excise tax | The producer | The tenant producer |
In contract brewing, the producer makes or packages the beverage under its own license and handles the regulatory records, labeling compliance, and excise tax obligations. The brand markets and sells the product under its own name but is not the manufacturer of record.
In an alternating proprietorship, the tenant producer uses a host facility’s space and equipment under the tenant’s own permit. The tenant holds title to its product at every stage and operates as its own licensed producer, not as a customer buying finished product from the host.
Custom crush and mobile canning are variants of the same idea: a facility or operator produces or packages for a producer that does not own the equipment. The label might say one thing; the underlying arrangement governs who holds the license, who owns the product, and who the TTB recognizes as the manufacturer.
Because the models differ on who holds the license and who owns the product, they differ on who insures that product and who is treated as the manufacturer if something goes wrong.
Who Owns Which Risk in a Contract Production Arrangement
In a contract production arrangement, risk follows whoever holds the license and whoever owns the product. Four exposures sit inside a contract production arrangement, and both the brand and the producer carry exposure that the agreement between them allocates.
A brand’s product sitting at a host or co-packer’s site is exposed to loss at that location, whether from fire, equipment failure, or spoilage. The other company’s property policy is written for its own building and equipment. It may not extend to a customer’s product stored or produced there. That leaves the brand’s inventory exposed unless the brand carries its own coverage for product away from its premises.
Product liability can name either or both parties, regardless of who caused the problem, because the brand’s name is on the label and the producer physically made the product. The agreement allocates who covers what, but a claim does not wait for the parties to sort that out.
Contractual liability adds a third exposure. When a party accepts liability it would not otherwise carry through an indemnity or hold-harmless clause, a standard policy may not cover that assumed liability. Under CGL Coverage A, assumed liability falls under exclusion b., with an exception for liability assumed under an insured contract. What the contract assigns has to be insurable, not just written down. An indemnity promise backed by inadequate limits or a policy exclusion for contractual liability is not worth what it says on paper.
Care, custody, and control create the fourth exposure. When one party holds the other’s product or equipment, standard liability coverage can exclude damage to property in that party’s care under CGL Coverage A exclusion j.(4). Confirm both exclusions against your carrier form with your underwriter before relying on the policy language here.
Because both parties carry exposure, each needs specific coverage from the other, set out in the agreement before production starts.
Insurance Requirements Between the Parties
A contract production agreement should carry insurance requirements that run in both directions, because each party wants the other’s coverage to stand behind the promises in the agreement, and neither party’s policy protects the other by default. Each provision below is added to a policy by a specific endorsement, not simply by writing it into the contract — ask your underwriter for the exact form numbers, since they vary by carrier.
The four provisions worth addressing in any contract production relationship:
- Certificates of insurance and additional insured status: each party should require both from the other. A certificate of insurance proves coverage exists. Additional insured status gives the requesting party direct coverage under the other’s policy for claims arising from that party’s operations. This status is added by a vendors endorsement or equivalent additional insured endorsement.
- Waiver of subrogation and primary and non-contributory wording: these provisions set how the two policies respond to a shared claim and which one pays first. Without them, a single loss can turn into a dispute between the insurers before either party sees a resolution. Subrogation is waived by a waiver of transfer of rights of recovery endorsement; primary and non-contributory status is established by an other insurance endorsement.
- Indemnity, hold-harmless terms, and recall: these contractual promises are only as strong as the insurance behind them. Confirm the indemnifying party carries coverage for what it agreed to accept, at limits sufficient to make the promise real. Because the brand whose name is on the label typically owns the recall even when a contract producer caused the problem, recall coverage should be addressed explicitly in the agreement. The producer rarely carries recall coverage for a customer’s product.
- Limits matched to the exposure: a small co-packer’s policy limits may fall well short of a brand’s full recall or liability exposure. The required limits in the agreement should reflect the actual risk, not a boilerplate minimum written for a different operation.
When a Contract Partner Goes Down: Contingent Business Interruption
If a producer a brand depends on is shut down by a fire or other covered loss, the brand can lose its product and its income. Standard business interruption will not respond, because it requires direct physical loss at the named insured’s own premises. A loss at a separate producer’s site falls entirely outside that trigger — nothing happened at the brand’s location, and the brand’s standard policy does not respond regardless of how much the brand depended on that facility.
A brand that has most or all of its product made at one facility has nothing to sell if that facility goes offline, losing not just the batch in production but the income stream while the producer rebuilds or finds an alternative.
Contingent business interruption insurance is the coverage built for this dependency. It responds when a named supplier or producer the insured relies on suffers a covered loss that disrupts the insured’s own operations. Two mechanics decide whether a claim pays. First, the dependent facility must be scheduled by name on the policy — coverage does not attach automatically to any facility the brand happens to use. Second, the coverage typically carries a waiting period before it triggers, so losses that resolve quickly may fall below the threshold. Confirm both requirements with your underwriter when structuring the coverage.
The exposure runs in the other direction too. A host facility that takes on tenants carries its own version of this risk. A tenant’s operations or a shared-equipment failure can disrupt the host’s production as well as the tenant’s, and the host’s standard program may not respond to that kind of internally driven disruption.
Because “contingent business interruption insurance” describes a specific, named coverage with its own policy structure and endorsement requirements, it is worth raising directly with your broker when reviewing a contract production arrangement — not as a general concept but as a line item in your program.
How to Set Up Insurance for a Contract Production Relationship
Setting up insurance for a contract production relationship starts with knowing which model you are in and which risks are yours. Work through these six steps before the first batch starts:
- Confirm which model you are actually operating, since contract brewing and alternating proprietorship carry different licensing and insurance requirements, and the wrong assumption creates gaps from day one.
- Insure your product wherever it sits, including at a host or co-packer’s facility, because coverage for product away from your own premises is not automatic and a Property Off-Premises extension is typically sublimited well below real inventory value.
- Exchange certificates of insurance and additional insured status before production starts, in both directions, so neither party is relying on the other’s goodwill if a loss happens early.
- Match limits and indemnity to the real exposure, not a template. Review the actual value of your product at the host facility, your recall exposure, and your product liability risk before settling on required limits.
- Add contingent business interruption if your brand depends on one producer, and name that producer in the coverage so the trigger is clear when it matters.
- Review the arrangement with your agent or broker, and the agreement with an attorney, before signing. The coverage has to match the contract, and the contract has to be insurable.
Frequently Asked Questions
1. What is the difference between contract brewing and an alternating proprietorship?
The main difference is who holds the license and who owns the product. In contract brewing, the producer makes the beverage under its own license and is the manufacturer of record, while the brand sells under its own name without holding title during production. In an alternating proprietorship, the tenant holds its own permit and title at every stage, operating as a fully independent licensed producer inside the host’s space. That distinction changes what each party must insure and whether your product liability exposure runs through your own manufacturer status or through the label alone.
2. What should I ask a co-packer before we start production?
Before production begins, confirm in writing whether their property policy extends to your product while it is in their facility. Most do not. Also ask whether they carry product liability coverage that would respond to a claim involving your product, whether they will name you as an additional insured, and what their process is for notifying you of a loss that affects your inventory. Getting those answers before the first batch is far easier than sorting out coverage after a loss.
3. What does contingent business interruption actually require to trigger?
Two things. The dependent facility must be scheduled by name on your policy before the loss happens — coverage does not follow an unnamed supplier automatically. And the coverage carries a waiting period, typically measured in hours, before it begins to respond. A disruption that resolves inside that window may not trigger a payment at all. If you depend on a single producer, confirm both the schedule requirement and the waiting period with your broker before you assume the coverage protects you.
4. Do both parties in a contract production deal need their own insurance?
Yes. Both the brand and the producer carry exposure, so each needs its own coverage and should require it from the other. The producer faces claims from its operations and its facility. The brand faces product liability and recall exposure tied to its label. Neither party’s policy protects the other by default, which is why the agreement should require certificates of insurance and additional insured status in both directions, along with the endorsements that make those provisions operative on the actual policies.
5. Who covers a recall if my contract producer caused the problem?
The brand whose name is on the label typically owns the recall, even when a contract producer caused the problem, because consumers and retailers look to the brand. The producer rarely carries recall coverage for a customer’s product. You can pursue the producer for indemnity afterward, but your own recall coverage is what responds first. Make sure your contract production agreement addresses recall explicitly, including which party is responsible for the cost and how that responsibility is backed by insurance.
Talk to PAK Programs About Contract Production Coverage
Contract production splits the license, the product, and the liability between a brand and a producer, and your coverage has to match the side you are on and the model you use. PAK Programs designs specialty insurance for craft beverage operations across beer, wine, spirits, cider, hard seltzer, kombucha, and ready-to-drink beverages, placed through your licensed agent or broker.
Before you sign a contract production or craft beverage insurance program agreement, ask your agent or broker about PAK Programs and have them review your coverage against how your product is made, who owns it, and where it sits. Find a PAK-appointed agent or broker to start that conversation.
Disclaimer: This article is for general informational purposes only and is not insurance, legal, or tax advice. Coverage, terms, and availability depend on the actual policy, the carrier, and the applicant. Nothing in this article constitutes a guarantee of coverage or a claim outcome. Please consult a licensed insurance professional regarding your specific operations, and an attorney for questions about contract drafting or legal obligations.
Disclosure: PAK Programs is a specialty insurance program for the craft beverage industry, placed through licensed agents and brokers rather than sold directly. Coverage is underwritten by member companies of Great American Insurance Group. This content is not an offer or solicitation of insurance. Availability and eligibility vary by state and underwriting.
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