Contractual liability in an insurance coverage that is contained in a Commercial General Liability or CGL policy. This coverage is designed to indemnify or “hold harmless” another person or entity for actions not specifically excluded on the insurance policy. This type of coverage may be included on a policy, or it can be added with an additional endorsement. Contractual liability can be applied on a limited basis or provide blanket coverage.
Contractual liability coverage in a standard CGL policy consists of coverage for all liabilities that have not been specifically excluded on the policy. A standard CGL policy exclusion can state that coverage does not apply to liability that would be assumed through the use of any contract or agreement except for contracts that are incidental. This means that coverage is limited to what has not been stated in the exclusion.
When contractual liability has limitations or exclusions included on a CGL policy, an endorsement can be added to provide the needed coverage. When an endorsement has been added the insured states on the policy what type of liability will be assumed by the insurance company. An endorsement is also known as an affirmative grant of coverage under the insurance policy.
One type of contractual liability that can exist as a standalone policy or as an endorsement is standard coverage. Standard coverage for contractual liability must include all of the various contracts in which liability has been assumed by the insurer. This is done by including all applicable contracts on a separate schedule that is attached to the insurance policy. If a contract has been omitted from the form, coverage will not be provided to the insured.
Another type of coverage that is available as a stand-alone policy or as an endorsement is known as broad or blanket coverage. This type of coverage does not require a separate schedule because all assumed contracts are covered by the policy. This type of coverage is the most beneficial to an insured because he does not need to worry about not including a contract for coverage.
Individuals that purchase contractual liability insurance may not realize that there are limitations that apply to the coverage. This can include the coverage limits of the policy and the types of losses that are insured by the policy. A CGL policy with coverage for contractual liability does not provide coverage for unforeseen losses that can occur to a business.