What Is Contractual Liability Insurance?
Contractual liability insurance helps protect small business owners from claims due to contracts. When a business owner signs a contract, it assumes liabilities. This is known as contractual liability.
For example, let’s say your landscaping business is hired by a general contractor to do work at a client’s home. Your business signs an agreement with the general contractor. The agreement means your company will assume financial responsibility for claims. This is why contractual liability insurance is important. Without it, you'd have to cover claims out of pocket.
What Does Contractual Liability Insurance Cover?
Contractual liability insurance helps cover claims related to contract issues. It covers liability that a business owner assumes from a contract.
Contractual liability coverage is important for businesses that regularly deal with contracts, such as contractors. Construction contracts are a reason why contractors insurance
is so important to have.
Let’s say a general contractor signs construction contracts with a property owner. The contract states that the general contractor will have to assume bodily injury or property damage claims on the property while work is being done. When the insured takes on financial liability from another party like explained in this scenario, it’s known as hold harmless.
And it's not just construction companies that can benefit from contractual liability coverage. If your business rents office space, you likely signed a lease agreement. These contracts typically require business owners to hold harmless the building owner from losses.
Understanding Contractual Liability Insurance
Contractual liability insurance can be a complicated topic. That’s why we’re here to help. There are a few key parts to contracts that are important to know and how they relate to contractual liability insurance.
What Is an Indemnity Agreement or ‘Hold Harmless’ Clause?
An indemnity agreement in a contract is also known as a “hold harmless clause” or “hold harmless agreement
.” If you sign a contract with another party and agree to a hold harmless agreement, that means your company assumes responsibility of losses and claims.
So, if there’s a bodily injury or property damage claim, your business is responsible for covering it – not the other party.
What Are Contractual Liability Endorsements?
Endorsements are changes to an insurance policy. Be aware that a commercial general liability insurance
(CGL) policy usually excludes risks that you assume when signing contracts with another party. To cover this type of loss, you’d have to get a contractual liability endorsement.
Standard Contractual Liability Endorsement
A standard contractual liability endorsement is an add-on to your CGL policy. You’ll have to list the various contracts you want to be covered by the endorsement.
Blanket Contractual Liability Endorsement
A blanket contractual liability endorsement covers all contracts, which is why it’s typically more expensive. This means you don’t have to list the specific contracts you want coverage for, like in a standard endorsement.
Contractual Liability Insurance Limitations and Exclusions
Be aware that there are contractual liability exclusions and limitations. This means your contractual liability coverage won’t cover every kind of claim.
Contractual liability insurance won't help with incomplete contracts. It also won’t help you if your business doesn’t live up to the terms of the agreement.
For example, if your business agreed to cater a client’s party but don’t bring enough food, you can get sued. In this case, contractual liability insurance won’t help you.
Like other types of insurance, contractual liability insurance has coverage limits. That’s why it’s important for you to get the right amount of coverage for your business.
Get a Quote From The Hartford Today
Not all insurance companies are the same. We’re backed by more than 200 years of experience and have helped over 1 million small business owners. Our specialists are here to help you understand if contractual liability insurance is right for your business. And if you have questions about other types of insurance coverage or need help with a claim, we’ve got your back.
Última actualización: 12 de septiembre de 2022