You don't need to be a direct party in a contract to be affected by it.

You can insure against possible negative outcomes of someone else's contracts.

e.g.) Party A and Party B sign a contract that Party B will pay Party A $X by some date. Party A has seperately agreed to pay you $0.9X shortly afterward.

You are a savvy businessperson and realize that Party A will not have $0.9X to pay you if the Party B fails to make their payment.

Party B is on the rocks after a nasty reorg, and you think the probability they fail to pay is significantly greater than 0.

You want to protect your business against this event. To do so, you purchase a Credit Default Swap from Party C for $0.05X that ensures the full $0.9X payment.

While Michael Barry was "speculating" using CDS's, you could also argue that he was "insuring" his firm against a housing crash, which did tank most investment vehicles.