What Is a Contractual Liability Insurance Policy (CLIP)?

by Sue-Lynn Carty - Updated September 26, 2017
Hand signing a contract

A contractual liability insurance policy provides additional insurance over and beyond a commercial general liability insurance policy. When you or your business enters into a contractual agreement with another business entity, you may be required to carry CLIP insurance in addition to the CGL policy. This type of policy protects the insured – generally the entity you do business with – against any liabilities that may arise as a result of the contract or the work that you do.

CLIP Insurance Coverage

CLIP insurance does not cover a failure to abide by the terms of a contract. It covers the other party's liability that may arise as the result of you fulfilling your contract. For example, under the terms of a contract you sign as a plumbing professional making repairs in a landlord's apartment building, you agree to hold the landlord harmless for damages that could arise as a result of you completing your work. If while working, you break a pipe that damages a renter's furniture, the contractual liability insurance policy would cover the damage caused as a result of the work you did under the contract.

Commercial General Liability Policy

Commercial general liability policies refer to negligence or events that are a result of something the policyholder – contractor did while executing the contract. If you hire a plumber to make repairs to your home, a CGL policy protects you from damages that he may cause by not completing his job satisfactorily. Since the contractor has CGL insurance, the policy covers your damages and his legal defense if you decide to sue the plumber. This type of policy is not the same as contractual liability insurance.

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Breach of Contract

When you hire the plumber as a landlord or a homeowner, and he does not complete the work you hired him to do, most commercial insurance policies do not cover breach of contract. Commercial liability insurance policies, whether general or contractual in nature, usually only cover TORT claims – events that occur because of an infringement of a right or a wrongful act that could lead to legal liability in a civil case.

Additional Insured Coverage

Most contractual liability insurance policies cover only the damages for the party specifically named on the insurance policy unless you add an "additional insured." For example, by adding the business's name and the general contractor's name as additionally insured, if one of your employees gets hurt on the job, this endorsement protects the company you work for and the general contractor as the additional insured from suits or damages that could arise because of the employee's injuries. This type of an endorsement usually applies when they are contractors and subcontractors involved on the same project.

About the Author

Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Carty holds a Bachelor of Arts degree in business administration, with an emphasis on financial management, from Davenport University.

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