One of the key components of a standard commercial general liability policy (CGL) is the contractual liability portion. This is because businesses and organizations are likely to be sued for breach of contract at some point in time. For instance, if a customer gets injured while inside or around your business premises and decides to sue for damages, someone will need to assume liability for the customer’s injury. If you carry CGL, your insurer will assume the resulting financial consequences on your behalf. Here’s a detailed look at contract liability insurance coverage.
What Is Contractual Liability Insurance?
This is part of the commercial general liability policy, which protects your business from third-party liabilities. Commercial general liability insurance pays for the resulting costs if a visitor sustains an injury on your premises. Contractual liability insurance provides the same coverage, only that it transfers the liability costs from one party to another. This policy does not transfer liability from one party to another. Instead, it transfers the financial consequences that may result in case something goes wrong in the contract.
If let’s say, you hire a contractor to build a flight of stairs in your home, you must be liable in case of third-party injuries or property damage. However, you can protect your finances by transferring the risk to the contractor. This way, in case of third-party liability, the contractor will cover the financial losses. The contractor must protect themselves with enough contractual liability insurance coverage in such a case.
Contractual liability insurance provides coverage through an indemnity agreement, also called a hold harmless agreement. This agreement involves two parties – the Indemnitor and the Indemnitee. The Indemnitor is the party that assumes liability to protect the indemnitee. On the other hand, the indemnitee is the party from whom the penalty is lifted. In essence, you are the indemnitee if you transfer your liability costs to the contractor while the contractor is the Indemnitor. If an injured person files a lawsuit against you, the contractor will pay for defense, treatment, and compensation costs. However, the terms must be clear in the indemnity agreement.
What Does Contractual Liability Insurance Cover?
Contractual liability insurance covers third-party liabilities. Unlike general liability insurance, though, contractual liability insurance only provides contract coverage, just as the name implies. Here, the Indemnitor covers the financial consequences of third-party liabilities on behalf of the indemnitee. So, the Indemnitor is the policyholder who, in turn, seeks financial protection from the insurance company to avoid paying for liability costs out of pocket. Contractual liability insurance is essential for high-risk businesses. Currently, construction and transportation industries are some of the most dangerous professions in the U.S., meaning businesses in these industries must carry a contractual liability policy.
Learn How to Get the Right Contractual Liability Insurance Policy with J Archer Insurance
The easiest way to get the contractual liability insurance you need is to get in touch with experts who will take the time to learn about you and your business. To get the correct type of policy and the amount of coverage you need, call our reputable agents at J. Archer Insurance Group, who will review the types of risk you face and the net worth of your business. We are here to assist you will all your coverage needs today!