Contractual Liability Insurance: Top Things You Need to Consider

Contractual liability insurance is a type of coverage that protects against liabilities that policyholders assume when entering into a contract. It’s an essential tool for businesses that engage in or provide services through the mechanism of a written contract.

What is Contractual Liability Insurance?

Contractual liability insurance indemnifies the policyholder from liabilities that may be expressly stated in the contract or may be implied by the nature of the obligations listed in the contract. It covers third-party bodily injury or property damage for which your business has assumed liability under an indemnity agreement (also called a hold harmless agreement) in a contract.

Key Takeaways

Understanding Contractual Liability Insurance

Once the indemnitee accidentally causes or allegedly causes injury or damage to a third party, the indemnitee is still answerable for that liability. What is being transferred by the indemnitor to the indemnitee instead are the financial consequences (i.e., money damages) of the determined indemnitee’s liability.

For example, a construction company working on a city government building may be required to hold the city harmless if someone were to be injured on the construction site. The construction company has agreed to assume liability and indemnify the city. A contractual liability insurance policy would protect the contractor from losses that the building contract protects the city from.

Indemnity Agreement

An indemnity agreement (also called a hold harmless agreement) transfers liability for losses from one party to another. It’s a promise by one party to indemnify (reimburse) someone else for the cost of claims brought by a third party. The party providing indemnification is called the indemnitor while the party being indemnified is the indemnitee.


In conclusion, contractual liability insurance is an essential coverage for businesses that frequently enter into contracts. It provides protection against potential financial losses resulting from liabilities assumed under these contracts. By understanding how this type of insurance works, businesses can better manage their risks and protect their financial stability.

Remember, it’s always important to consult with an experienced insurance professional when considering contractual liability insurance to ensure you have adequate coverage for your specific needs.


Q: What types of contracts does Contractual Liability Insurance cover? Contractual Liability Insurance typically covers various contracts, including construction agreements, service contracts, and rental agreements.

Q: How does this insurance protect my business in case of contract disputes? In the event of a contract dispute, Contractual Liability Insurance provides coverage for legal fees and financial losses, ensuring your business doesn’t suffer.

Q: Is Contractual Liability Insurance a legal requirement? No, it’s not a legal requirement, but it’s a smart choice for businesses involved in contracts.

Q: Are there any exclusions in Contractual Liability Insurance policies? Policies may have exclusions, so it’s crucial to carefully review your policy with your insurer to understand the scope of coverage.

Q: Can Contractual Liability Insurance be customized to specific contracts? Yes, insurers can tailor policies to suit the specific needs of your contracts, providing flexibility.

Q: How can I find the right insurer for Contractual Liability Insurance? Research and compare insurers, looking for experience, reputation, and competitive rates to find the best fit for your business.

Leave a Comment