Sunday, September 25, 2022

What Is Contractual Liability Insurance

Don't Miss

What Is A Contractual Liability Exclusion

What Is Contractual Liability Insurance? : Liability Insurance

As a rule, a standard CGL policy that covers contractual liability provides coverage for any liability that hasnt been specifically excluded.

Exclusions are clauses that insurance providers insert into policy documents to limit their exposure and liability for reimbursement for covered businesses and individuals. If a particular loss is covered by an exclusion, the insurance company has no obligation to provide coverage or reimburse the injured party for associated losses.

This is a crucial point to understand, especially for businesses that have been operating for a few years or more and that are covered by CGL policies. Thats because in many cases, contractual liability may be specifically excluded from coverage in the CGL policy terms.

A contractual liability exclusion could wreak havoc for an unsuspecting business thats assumed liability under a hold harmless clause. This conflict can arise where another party invokes the hold harmless clause and presents a claim for reimbursement to the business to cover the partys losses. If the businesss CGL policy contains a contractual liability exclusion, then the insurance company will not be liable for the partys losses. That means the business will be left footing the entire bill on its own. If the losses are substantial enough, one such claim could force the company out of business.

Whats Professional Liability Insurance

This policy aims to protect service-oriented businesses such as law firms, consultancy businesses, and healthcare practices from liability claims that emanate from their negligence or other professional mistakes. Its also referred to as an errors and omissions policy or medical malpractice insurance, depending on the type of profession.

Failure To Complete The Contract

Contractual liability insurance covers injuries, losses, and damage to third parties. However, it wont cover you if you fail to do your part of the work as addressed in the contract.

For example, your construction company was hired to finish a building 18 months from signing the contract. However, you failed to deliver a completed building to the owner. If they sue you, your contractual liability insurance policy wont come to your rescue.

For example, CNN Business reports that the University of California, Los Angeles filed a claim against Under Armour for deceitfully ending a contract with the university. After entering a contract worth $280 million with Under Armour, UCLA claims that the company struggled with fulfilling its end of the clause and falsified its financial standing.

In this case, since the contract ended due to failure to meet the demands, contractual liability insurance wont cover Under Armour even if they purchased it.

Recommended Reading: What Is The Best Life Insurance Company

How Does Professional Liability Insurance Typically Works

The American Bar Association estimates that a staggering 80% of attorneys will be sued for malpractice at some point in their careers. Solo attorneys are more susceptible to such kinds of lawsuits. The good news is that professional liability insurance is a specialty insurance policy that covers such professionals, including others like doctors and design professionals, from financial losses associated with liability claims. It covers issues such as malpractice, negligence, errors and omissions, and copyright infringement, among others. For instance, if some patients suffer an adverse reaction from a drug you prescribed, they may sue you for medical malpractice and possibly cause you to lose your professional license. While this policy only provides coverage for claims filed during the policy period, the insurer may include a retroactive date to enable coverage for errors that occurred before policy inception.

When Cgl Does Not Cover You

Contractual Liability Insurance: Secure Your Projects

Most CGL policies will exclude coverage when you enter into a contract to do work for a third party. If said contract includes a hold harmless clause, you may no longer have protection from your general liability contract. Contractual liability coverage can protect you in these types of situations, but it can also be complex.

Also Check: How To Claim Health Insurance Tax Credit

What Are Contractual Liability Endorsements

In insurance, an endorsement is a change to an insurance policy. A commercial general liability policy will almost always include an endorsement that excludes risks that you assume when you sign a contract with a third party. It’s possible to add a contractual liability endorsement to a commercial general liability policy and it comes in a couple of different varieties:

  • Standard Contractual Liability Endorsement: A standard contractual liability endorsement requires you to list the various contracts you want covered by the endorsement.

All applicable contracts must be listed on a separate page of the policy, which is attached to the policy. The big downside to this type of policy endorsement is that if you accidentally forget to add a contract to the policy, there will be no coverage for it.

  • Blanket Contractual Liability Endorsement: While this type of endorsement tends to be more expensive, it’s more convenient. A blanket endorsement covers all of your contracts instead of requiring you to list them individually. All new contracts you sign are covered.

What Is Contractual Liability Insurance

Let’s begin at the beginning. Contractual liability is risk that you assume on behalf of another party due to a contract you’ve signed with them. The part of the contract that’s relevant here is a specific section, generally referred to as a “hold harmless” clause.

Contractual liability insurance comes in handy when dealing with contracts that have a hold harmless” clause.

Also Check: Can You Get Fined For Not Having Health Insurance

Contractual Liability Insurance Limitations

Numerous companies have general liability policies that protect them from the many risks that they face in day-to-day operations however, these policies may exclude coverage in some instances. Such an exclusion may apply to contractual liability, since this type of liability has been added to the overall risk profile of the company and may not have existed had the company not agreed to the contract.

An exception to a general liability policys contractual liability exclusion would also include a liability assumed under an insured contract. A contractual liability insurance policy fills the gap created by the commercial general liability insurance policys exclusion.

Coverage Of Contractual Liability Insurance

What is Contractual Liability Insurance?

Contractual liability insurance indemnifies the insured business from financial consequences that are assumed through any contract the business enters into with another party.

One common clause in business contracts is a hold harmless clause. This kind of clause allows one party to assume liability for any injuries or losses that occur during the contracts term.

So, for example, a landscaping company working on a piece of property owned by the local government may be required to hold the city harmless if anyone is injured, even accidentally, on the premises as a result of the work that the company is performing. If such an injury or loss takes place, the landscapers contractual liability insurance policy would cover the financial costs for that loss. The policy would basically help the company pay for the losses it agreed to protect the government from, according to the contract.

The standard CGL insurance contract has covered contractual liability losses since 1986. However, it is important to double-check any insurance contract carefully before signing, in order to make sure the expected coverage is included in the policy.

Don’t Miss: Cheapest Homeowners Insurance In Florida

Why Is Cgl A Requirement

Common law establishes that business owners owe a duty of care to the public, regardless of the business they operate. Unfortunately, accidents do happen and people or parties may allege the following three things:

  • A duty of care was owed.
  • That duty of care was breached.
  • Damages and/or injuries were incurred.
  • They may then allege that a business has been negligent and is responsible for compensating them for their damages.

    What Is An Indemnity Agreement

    Contractual liability insurance covers liability you assume under an indemnity agreement contained in a building lease, construction contract, equipment rental agreement, or other covered contract. An indemnity agreement transfers liability for losses from one party to another. It’s a promise by one party to indemnify someone else for the cost of claims brought by a third party. The party providing indemnification is called the indemnitor while the party being indemnified is the indemnitee.

    State laws limit the scope of liability that can be transferred in some types of contracts. If an agreement violates state law, the indemnitee may unable to obtain full reimbursement from the indemnitor.

    Recommended Reading: Car Insurance Quotes For Students

    Tokio Marine Hcc Faqs

    We hope this brief Q& A is helpful in relation to insuring certain liabilities that arise under contract. When it comes to the placement and acceptance of particular risk, we have found that, in our experience, common questions around contractual liability keep occurring:

  • Is the insured covered for this contract?
  • Should the insured accept the terms of this contract?
  • Is this contract acceptable to you ?
  • Insurers are unlikely to take kindly to being sent through a 200-page contract with the request can you read this and let us know if it is acceptable to you? but it is not unreasonable to expect an underwriter to give their view on:

  • clauses in contracts that allocate the responsibility for losses
  • indemnity and hold harmless provisions
  • insurance requirements
  • joint insured provisions
    • the policyholder accepting liability for things that are not its fault, such as agreeing to be liable for damage that could be caused by someone elses activities The policyholder accepting liability for things that it would not be liable for in common law. In practice, this usually means things that the policyholder would not be liable for in negligence or under statute
    • the policyholder agreeing to indemnify another party without restricting to things that are the fault of the policyholder and
    • the policyholder agreeing to hold somebody harmless for something that is the other persons fault.
  • clear language that defines what each party is responsible for
  • no joint insurance requirement.
  • Understanding Contractual Liability Insurance

    You Signed What? Contractual Liability in Australia

    Contractual liability involves the financial consequences emanating from liability, not the assumption of the indemnitee’s liability itself. Once the indemnitee accidentally causes or allegedly causes injury or damage to a third party, the indemnitee is still answerable for that liability. Thus, liability to a third party for injury or damage cannot be assumed by anyone other than the one who caused the injury or damage. What is being transferred by the indemnitor to the indemnitee instead are the financial consequences of the determined indemnitee’s liability.

    Contractual liability insurance indemnifies the policyholder from liabilities that may be expressly stated in the contract or may be implied by the nature of the obligations listed in the contract. A common phrase found in contracts states that one party agrees to hold another party harmless for any injuries, accidents, or losses that occur while the contact is in effect.

    For example, a construction company working on a city government building may be required to hold the city harmless if someone were to be injured on the construction site. The construction company has agreed to assume liability and indemnify the city. A contractual liability insurance policy would protect the contractor from losses that the building contract protects the city from.

    Recommended Reading: Does Pet Insurance Cover Medication

    Putting It All Together

    Theres a lot to stay on top of when it comes to insurance and tracking, regardless of the industry you represent. There are ways to stay on top of your insurance tracking without feeling completely overwhelmed. When managing insurance and compliance, its best to know how to guard against liability, assess the problem and be proactive in your solutions. An insurance tracking service like myCOI can partner with you and your team to ensure that youre always adequately protected.

    Whats A Hold Harmless Clause

    Lets continue with our plumber example. Youre a plumber that works under a general contractor who signs a hold harmless agreement for a new commercial building. If you break a pipe while working for the contractor, your business and only your plumbing business will be liable. Liability includes damages and any resulting lawsuit as a result of the break.

    The hold harmless section the contractor signs clears him of the damage you cause, even though you are under contract with him. Even if the building owner sues the general contractor, you will have to pay for the contractors legal fees and any damages that are given in the lawsuit. This means you assume all of the risk that comes with your work while the general contractor assumes zero. This is where a contractual liability policy comes in handy.

    Any business that works on a contractual basis with other businesses should consider carrying Contractual Liability Insurance. It adds a layer of protection that goes above and beyond your CGL coverage.

    Also Check: Renters Insurance For Storage Units

    Understanding The Implications Of Insurance Policy Language

    Whats covered, and how that coverage is defined, depends on what the individual insurance policy wordings say. At Reliance, we dont expect our clients to automatically understand the implications of insurance policy language. Thats our job and we will ensure your insurers provide broader coverage. Well also help you make an informed decision about the risks you may be assuming.

    What Is Contractual Liability In Motor Insurance

    Contractual Liability under an insurance policy – the simple version.

    Car insurance, or motor insurance doesnt cover any contractual liability that a policyholder has towards the car theyre purchasing. For example, you bought a new car and purchased car insurance for it. However, youve signed contracts with someone else where youve allowed them to use your car. If the person accidentally smashed your car, then your insurance will not cover the damage. In other words, contractual liability in motor insurance is nonexistent.

    Also Check: How Long Do You Have To Claim Life Insurance

    Blanket Contractual Liability Insurance Defined

    Blanket Contractual Liability Insurance def: Coverage applying to all liability assumed by the insured in contracts, whether reported to the insurer or not. Note that the term blanket contractual liability insurance does not address the extent of the transferred liability the policy covers, only that it is not necessary to report contracts to the insurer for listing in the policy. It is possible to have blanket broad form contractual liability insurance or blanket limited form contractual liability insurance. Contractual liability coverage was added to 1973 and earlier edition comprehensive general liability policies by endorsement. Blanket broad form contractual liability coverage is incorporated into the basic provisions of the 1986 and subsequent commercial general liability forms.

    What Does Contractual Liability Mean

    A contractual liability is a responsibility or an obligation that a party must adhere to as per the terms of a contract that the party agreed to and signed. In the context of insurance, parties often purchase contractual liability insurance to help pay for any financial losses that may result from their failure to deliver or perform a service as stipulated in a contract they sign.

    Recommended Reading: Does Comprehensive Auto Insurance Cover Rodent Damage

    Cover Your Business Both Ways With Contractual Liability Insurance

    Who is helping your organization identify and protect itself from contracts that request unreasonable and unnecessary insurance coverages and limits, or coverage for things that are simply uninsurable? On the flip side, does your organization ask your product and service providers to maintain and provide proof of proper insurance by way of contract?

    Why Get Contractual Liability Insurance If You Already Have General Liability Insurance

    Contractual Liability Insurance Policy

    General liability insurance automatically covers you against contractual liability, but we still recommend that you get proper coverage with extended limits as your business requirements.

    Most commercial general liability insurance policies understandably exclude contractual liability insurance under Coverage A . However, under this exclusion, there are two crucial exceptions:

    Recommended Reading: Is Life Insurance Considered An Inheritance

    What Is Contract Liability

    Contract liability refers to liability that one party of a contract shoulders on behalf of another party.3 min read

    Contract liability refers to liability that one party of a contract shoulders on behalf of another party. It is implemented through an indemnity agreement or hold harmless agreement in a contract. This type of liability can be used to transfer the risk of lawsuits from one party to another, making it an important concept in risk management.

    Is Contractual Liability Included In General Liability

    Contractual liability coverage in the ISO CGL form is addressed through through an exception to the exclusion for contractual liability in Section 1, Coverage A, Part 2, b below.

    Contractual liability is excluded, however there is an exception for an insured contract which is defined later in the CGL policy.

    An insured contract includes a building lease, sidetrack agreement, elevator maintenance agreement, etc. and other legacy contracts that go back to the 1970s.

    The reference to an indemnity agreement appears in item f which refers to that part of any contract or agreement pertaining to your business under which you assume the tort liability3 of another party to pay for bodily injury or property damage to a third person or organization.

    Recommended Reading: Is Metlife Dental Good Insurance

    Do I Need Contractual Liability Insurance For My Business

    Business Insurance, inews

    If you own a small, medium or even large business, one of the biggest threats to your livelihood is liability. Legal bills and damage awards can quickly spiral out of control, putting your business at risk. There are numerous commercial insurance products, including general liability insurance, that can help you lessen liability risk. One insurance coverage that is easy to overlook is contractual liability coverage. If you do a lot of contractual work, you could be putting your business at risk if you are dont have proper protection against mistakes or accidents. Lets examine contractual liability, its exclusions and endorsements so that you can mitigate your liability risk.

    A Construction Industry Perspective

    What You Need to Know About Contractual Liability Insurance

    How the concept of contractual liability is treated in conjunction with the standard ISO commercial general liability policy has been a continuing source of confusion for policyholders, certificate holders, and insurance agents and brokers. This article aims to help clarify how contractual liability is addressed from the standpoint of construction liability policies issued under the standard ISO CGL. However, observations and examples have applicability to other commercial policyholders in different fields that use the current ISO CGL Form for their general liability policy.

    Contractual liability explained

    In its broadest sense, contractual liabilityor in other words, a liability based on a contractis simply a promise made that may be subject to court enforcement. The contract can be either written or oral.

    If, for example, I agree to trim a tree in your yard for $500 and receive $200 down but decide not to perform the services requested, I am in breach of contract. You can elect to sue me for the $200 I kept without performing the service. As it applies to a construction agreement, the contractormore specifically, a building contractorassumes liability to perform specified services, such as building a room addition or a full house, or in the case of a subcontractor, more specific services on behalf of the general contractor.

    Contractual liability insured

    Contractual liability and the CGL policy

    Final comments

    The author

    Tags

    Read Also: How To Get Personal Health Insurance

    More articles

    Popular Articles