Contractual Liability

Contractual liability refers to one party being held liable for the losses or damages incurred by another party, he or she is assuming contractual liability. Similar to many other companies, your business may perform work for another company or hire another company to perform work. Whichever the case may be, you may have signed a contract that includes an ‘indemnity agreement’ also called a hold harmless agreement. These agreements occur when one party promises (by way of contract) to bear liability on behalf of another person or entity.

It is important to check and understand your contracts, in some cases you may be taking on liabilities which are outside the scope of your current liability cover.

Many companies have general liability policies that protect them from 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 policy’s contractual liability exclusion would also include a liability assumed under an insured contract.

A contractual liability insurance policy fills the gap created by the general liability insurance policy’s exclusion.