Contractual Liability Insurance
Contractual liability is a necessary business risk and the trade-off can be very lucrative – your insurance policy should not stand in the way of success. However, it may contain exclusions that can haunt your organization if something goes wrong after the contract is signed. These exclusions or limitations must be addressed proactively.
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?
Understanding the implications of insurance policy language
What’s covered, and how that coverage is defined, depends on what the individual insurance policy wordings say. At Reliance, we don’t expect our clients to automatically understand the implications of insurance policy language. That’s our job and we will ensure your insurers provide broader coverage. We’ll also help you make an informed decision about the risks you may be assuming.
Types of contracts
All kinds. Contracts can relate to services, products, property or equipment leases, or companies you hire to perform work on your behalf. In simplest terms, contractual liability is a transfer of risk that occurs when one party assumes liability on behalf of another via a contract. They typically ask for proof of insurance by way a Certificate of Insurance. As far as your company’s insurance program is concerned, the contract may be asked to provide coverage to a third party for liabilities caused by your organization – some of which may be much greater than what is custom or fair.
Exclusions to contractual liability
Insurance policies usually contain a range of exclusions pertaining to contractual liability. However, there is often room for strategic negotiation with insurers to provide broader coverage for minimum or no cost. Given how common contractual risk is, most policies have limited coverage built-in which typically reads as follows:
- The legal liability you would have if the contract did not exist.
- The liability you assume under an insured contract as defined in the policy, provided the injury or damage occurs after the contract has been executed.
Contractual liability best practices
- Check the insurance coverage related to companies you do business with such as suppliers, manufacturers, and subcontractors.
- Ensure contracts from vendors or suppliers contain a provision to provide you with proof of insurance by means of a certificate of insurance. Provisions should also include contractual liability and your organization added as “Additional Insureds”.
- Contracts can contain harmless agreements, waivers of subrogation and assumptions of liability that do not fall within the coverage automatically afforded by the commercial general liability and contractual liability policy. These are critical to address before the contract is signed.
- Obtain sound legal counsel with respect to your contracts and assumptions of liability of others.
- It’s sound business practice to provide a copy of your contracts to your insurance agent. There may be insurance requirements in them that your policy currently does not cover. Additional coverage may be required or the policy contract wording may need modifying.
Your Reliance Insurance team can support your organization’s continued success by:
- Identifying your insurance contractual obligations;
- Proactively reaching out to your insurers when necessary; and
- Providing you with any necessary certificates of insurance to satisfy these obligations.
Partner with Reliance to protect your organization and continue on the path to success.
You may need:
Prevent loss of income if your premises are damaged.
Directors & Officers
As a director or officer, protect yourself from being sued.
Protect your digital and financial assets against cyber attacks.
Health insurance and retirement planning options for your employees.
Reliance is genuine about making sure your business is properly protected and puts your interests first above all else.
— President, Value Drivers
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