Contractual liability is a widely used, yet frequently misunderstood, aspect of risk management and commercial insurance. Companies commonly enter into contracts that include promises, warranties, or duties while they conduct business. These contracts sometimes include ‘hold harmless’ or indemnity terms in which one party agrees to take the risk of loss or damage that would otherwise be carried by another party. Furthermore, we will explain. Contractual Liability Insurance Policy, coverage, cost, and how it work.<\/p>
This insurance protects small business owners from contract-related disputes. A company’s liability exposure increases when its owner commits to a contract. Contractual obligation describes this situation.<\/p>
Let’s imagine a general contractor hires your landscaping company to help out at a customer’s house. The general contractor and your company have agreed on terms. Your business will now be financially responsible for claims, thanks to the agreement. This is why having contractual liability insurance is critical. Without it, you would have to pay for your own claims.<\/p>
You can supplement your standard liability insurance with contractual liability protection.<\/p>
Contractual liability insurance is frequently required when two parties enter into a contract to do specific work. How does contractual liability insurance work? It works when the company committing to execute a service or fulfill another obligation accepts financial responsibility for any damages, including personal injury and property damage, that may occur during the course of its activities, holding the contractor harmless.<\/p>
A “hold harmless” clause, also known as an indemnity agreement, is a legal clause that is widely used in contracts to shift obligations from one party to another. For example, a city may employ a construction company to complete an infrastructure project, and the contract may include a hold harmless clause.<\/p>
In this situation, the construction company accepts financial responsibility and undertakes not to hold the city liable for it. This could include being held accountable for third-party injuries on the construction site or property damage to a nearby private structure.<\/p>
The building company would then obtain contractual liability insurance to help cover these potential financial losses.<\/p>
A commercial general liability policy frequently has restrictions or doesn’t cover contractual liability insurance at all. To fully protect a business’s financial responsibility as set out in a contract, it must buy an extra endorsement. There are two kinds of endorsements:<\/p>
Standard contractual liability is when the company specifies which contracts it wants to be covered. <\/p>
Blanket contractual liability occurs when a company has coverage for all of its contracts. This endorsement costs more than a typical endorsement. <\/p>
Businesses that rent buildings may also utilize contractual liability insurance because their contracts may hold the building owner responsible for any claims arising from the business’s usage of the premises.<\/p>
Read Also: <\/strong>Contractual Liability Insurance: Protect Your Business from Contractual Risks<\/a><\/p> Contractual liability coverage is typically included in standard GL policies. These policies often cover “liability assumed under an ‘insured contract'” and “bodily injury” or “property damage” for which the insured becomes legally compelled to pay as a result of an “occurrence.”<\/p> An “insured contract” is generally defined in a policy as any agreement connected to the insured’s business in which they assume the tort responsibility of another party to pay for “bodily injury” or “property damage” to a third party.<\/p> It is vital to understand that a GL policy does not cover all contractual liabilities. Contracts including quality assurances, commercial performance, or financial commitments, for example, are normally outside the scope of a GL policy.<\/p> Though business general liability insurance does cover some types of contractual liability, it does not cover all risks.<\/p> When a customer gets hurt or their property gets damaged, general liability covers the business risk. This includes the cost of a lawyer, compensation, and court orders. Your insurance will cover third-party claims for injuries and property damage, even if you are responsible because of a lease or contract that has an indemnity or hold harmless clause.<\/p> One example is that business leases usually need general liability coverage. If a customer gets hurt on a business property, you might sign a lease that protects the lessor from that. When you do this, your business takes on the landlord’s responsibility. If a customer gets hurt, your general liability protection already covers that. This means that you are still protected against those risks.<\/p> Your general liability coverage, on the other hand, would not cover you if a customer sued you for breach of contract or because your work was late, wrong, or never delivered. To do this, you would need professional liability insurance, which is also called mistakes and omissions insurance (E&O).<\/p>Contractual Liability Insurance Policy <\/span><\/h2>
Is Contractual Liability Covered in a General Liability Policy?<\/span><\/h3>