What it means
General liability policies exclude liability you assume by contract, then give back coverage for liability assumed in an insured contract. The definition of insured contract includes leases of premises, easement agreements and, importantly, the part of any business contract under which you assume the tort liability of another party.
This is what allows a general liability policy to respond when a contractor agrees to indemnify a client for injury or damage claims arising from the contractor’s work.
The coverage does not extend to every contractual promise. Breach of contract, performance guarantees and obligations beyond tort liability are generally not covered. Endorsements can also narrow the insured contract definition.
An example
Crestview Tree Care agrees to indemnify a homeowners association for injury and damage claims caused by its tree work. When a falling limb damages a resident’s car and the association is sued, Crestview’s contractual liability coverage can respond, because the clause assumes tort liability for property damage to a third party.
Names in this example are fictional.
See this term in your own contract.
Send a lease, subcontract or client agreement with the policies you hold. You get every insurance requirement in it, cited to the clause, set against what your policies say. Free, and back within one business day.
Get a free contract checkContractual liability, answered
What is an insured contract?
It is a defined term in general liability policies. It includes leases of premises, certain easement and municipal agreements, and the part of a business contract where you assume another party’s tort liability for bodily injury or property damage to third parties. Liability assumed in these contracts is covered, subject to the policy’s other terms.
Does contractual liability coverage pay for breach of contract?
Generally no. Contractual liability coverage applies to tort liability you assume for another party, such as injury or damage claims. Failing to finish a job, missing deadlines or workmanship disputes are usually business risks, or matters for other products such as surety bonds, rather than general liability insurance.
General information only. It is not legal or insurance advice. Only issued policy documents and endorsements describe actual coverage.