Contractual Liability Insurance

AIP provides great rates to all kinds of businesses that need this coverage in Arizona, California, Colorado and New Mexico. Contact us today for a quote.

  Outside the context of insurance, contractual liability (or liability because of a contract) has a very broad meaning—a promise that may be enforced by a court.

 Example. I agree to paint your car for $1,000 and collect $500 prior to the job. After I accept the $500, I obtain a more lucrative offer and never show up to paint your car. You can go to court and claim the $500 you paid me, as I have breached the contract.
Your claim is a contractual liability claim!

 Hold Harmless or Indemnity Agreement

In an indemnity or hold harmless agreement, one party promises to reimburse, and/or defend, the other party against claims or suits brought against the indemnitee by a third party. The purpose of the hold harmless or indemnity agreement is to transfer the risk of financial loss from one party to another. This transfer or shifting of financial consequences is often called non-insurance contractual risk transfer and is considered a risk financing technique.

Where To Find Hold Harmless and Indemnity Agreements

Businesses or organizations enter into in a wide variety of contracts in which hold harmless or indemnity agreements may be found. One very common contract, in which a hold harmless or indemnity agreement is almost always found, is a Contractors agreement between the subcontractors and the contractor.

Contractual Liability Insurance and the Commercial General Liability Policy

Contractual liability insurance has been automatically provided within the commercial general liability policy since 1986. The mechanics of how coverage is actually provided does merit some explanation.

The first mention of "Contractual Liability" in the 2001 CGL policy is as the title of an exclusion. Coverage is eliminated by this exclusion for assumption of liability in a contract or agreement. There are, however, two important exceptions:

• Liability of the insured that would be imposed without the contract or agreement
   

• Liability assumed in a contract or agreement that is an "insured contract."

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