Does your business deal with contracts? Read this contractual liability insurance guide to safeguard your business.
If your business creates written or oral contracts on a daily basis, you’ll be aware of how specific and correct each contract needs to be. Whether you provide work for other firms or hire other companies, you’ve probably signed a contract containing an indemnity agreement. This is important to provide the right service, assure the client, and protect your business.
What is Contractual Liability Insurance?
When your business enters into a contract with another party, you are required to assume certain liabilities. It means your business is financially liable for third-party bodily injury or property damage claims according to the contract terms. Contractual liability insurance protects your business against the risks you take on in the contract. Buying this insurance ensures that your business is financially and legally protected in the event of accidents that may cause injuries or damage to property during the contract period.
What Does Contractual Liability Insurance Cover?
Contractual liability insurance protects you from the potential risks that you may face during the term of a contract that you have signed with another party. As your business assumes responsibility for losses due to third-party bodily injuries and property damage, the insurance provides coverage in such cases.
In the event of liability claims, your financial expenses are covered if you have contractual liability coverage.
Importance of Contractual Liability Coverage
All businesses typically have business general liability insurance. If you cause property damage or injuries during the course of your work, you will be covered by your general liability insurance. Contractual liability coverage provides added protection to your business against liability claims.
However, most general liability policies do not offer coverage if your business enters into a contract with a third party that includes a hold harmless clause. So, if you own a business that operates on a contractual basis, it becomes essential that you buy contractual liability coverage to safeguard your financial interests.
In the absence of the coverage, you may have to pay for the damage to property, injuries caused, and the resulting lawsuit expenses from your pocket.
What Does Hold Harmless Agreement in Contractual Liability Coverage Mean?
In simple terms, Hold Harmless is a clause that is added to a legal contract by the party issuing the contract. It states that in the event of third-party financial loss, bodily injury, or damage to property during the contract, you will be liable and not them. It is a risk management strategy adopted by them to safeguard their business from financial setbacks and legal expenses if an accident leads to liability claims.
If you sign a contract with another company where you agree to a hold harmless agreement it means that you accept the responsibilities for specific risks involved during the contract period and your business is now liable for both losses and claims.
Contractual Liability Endorsements
The risks you assume when your business enters into a contract with another party are, in most cases, excluded from your commercial general liability insurance (CGL). To safeguard your business from losses due to the risks that you have assumed you need to buy add-ons to your general liability coverage such as the contractual liability endorsement.
Standard Contractual Liability Endorsement
This is an add-on to your CGL insurance policy in which you must specify the list of contracts that you want to be covered by the endorsement. It is cheaper than the blanket endorsement. It is a good option if you do contract work with a select few companies. However, if you forget to add a contract to the endorsement, you will not get coverage for that contract in the event of a liability claim.
Blanket Contractual Liability Endorsement
Unlike standard endorsement, you do not need to specify the various contracts that you want to be added to this add-on endorsement. By default, this endorsement covers all the contracts. Also, when you sign new contracts, they are automatically added to the blanket endorsement. However, this feature makes it more expensive than the standard endorsement.
Limitations and Exclusions of Contractual Liability Insurance
If you run a business that works on a contractual basis and it requires you to enter into a contract with a third party, contractual liability insurance provides adequate protection. However, you must not overlook the limitations associated with the coverage and also the aspects of the contract that may not be included in the insurance.
It is vital that when you buy the coverage, you must understand its limitations and exclusions to avoid potential financial loss during the term of the contract. In the event of a loss that is not covered by the insurance, you may have to pay the sum from your pocket. So, talking to your insurance provider and clarifying all the questions you may have about its coverage is the best option.
Coverage limits
When you buy contractual liability insurance, you must specify to the insurance provider your accurate requirements. This helps them to get you a policy that covers all the risks and gives you maximum protection. The coverage limit mentioned in the insurance is crucial. If the amount does not adequately cover your loss, you may have to spend from your personal resources.
For the best chance of protecting your business in the event of a contract breach, negligence, or issue, contact Chambers & Company Insurance Brokers for all of your commercial insurance needs in California!