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 when something goes wrong after the contract is signed if these exclusions or limitations are not addressed proactively.
Cover your business both ways with contractual liability insurance
In consideration of that, 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 is covered and how that coverage is defined all 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 seek to have your insurers provide broader coverage and at the same time help you make an informed decision about the risks you may be assuming.
What kind of contracts are we referring to? 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 the behalf of another via a contract. And, 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 asking 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. For example, supplier or service contracts with well-known brands and big box stores.asking 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. For example, supplier or service contracts with well-known brands and big box stores.
Exclusions to contractual liability
As a result, insurance policies usually contain a range of exclusions pertaining to contractual liability, however, in many instances, there is room for strategic negotiation with insurers to provide broader coverage for minimum or no cost to you. Given how common contractual risk is most policies have limited coverage built in which typically reads as follows: :
- Legal Liability you would have if the contract did not exists.
- Liability you assume under an insured contract as defined in the policy provided the injury or damage occurs after the contract has been executed.
In consideration of the above there are some basic things to follow on a regular basis to protect your business and financial assets:
- 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 proof of insurance by means of a certificate of insurance and to include contractual liability and add your organization as “Additional Insureds.”
- Contracts can contain hold 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 the contract is signed.
- Obtain sound legal counsel with respects to your contracts and assumptions of liability of others.
- It is sound business practice to provide a copy of your contracts to your insurance agent. There may be insurance requirements in your contract that your policy currently does not cover. Additional coverage may be required to be added to your policy or the policy contract wording may need to be modified.
Our Reliance Insurance team of experts can help you 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.