Contractual liability insurance vs. General Liability insurance
Contractual liability insurance and general liability insurance are related — but they’re not the same thing.
- General liability can help cover common business risks.
- Contractual liability can help cover risks you agree to take on contractually.
General liability insurance could help protect your business if a non-employee makes a claim against your business for injuries they suffered while at your place of work or the damage you or your employees caused to someone else’s property. For example, if a customer slips and falls at your job site, general liability insurance may help cover medical or legal costs.
Contractual liability insurance focuses specifically on obligations you agree to in a work contract. If a contract says you’re financially responsible for certain damages, injuries or losses, this coverage may help with those costs — even if the issue involves someone else.
Contracts can transfer more risk than your everyday business operations. That’s why some businesses add contractual liability coverage to help fill in risk and liability gaps.
Contractual liability and hold harmless agreements
If you’re a general contractor and you hire an electrician that accidentally electrocutes themselves on the job, you could be partly responsible for their medical expenses — unless you included a hold harmless agreement in their contract. With this clause agreed upon in the contract, the subcontractor may not be able to sue you for medical expenses. They agreed to “hold you harmless.”
In these kinds of business contracts, the subcontractor assumes all the risk related to their work, and the general contractor does not share the liability. Contractual liability insurance can help protect policyholders — in this case, the subcontractor — from financial costs resulting from these types of hold harmless agreements.
4 common contractual liability insurance myths
Understanding the realities of this type of insurance is crucial for making informed decisions about your coverage needs. Common misconceptions include:
1. False: A General Liability insurance policy covers contractual obligations
While general liability insurance can include some limited coverage for certain insured contracts, it may not extend to all indemnification or hold harmless agreements.
2. False: Only large businesses need contractual liability coverage
Small businesses face many of the same risks and may benefit from this coverage to help manage costly claims.
3. False: If you’re careful with contracts, there’s no need for insurance
Even well-negotiated contracts can include risky clauses.
4. False: Insurance for contractual liability is too expensive
Costs depend on your business size, industry and the types of contracts you sign. The cost of being uninsured could be far greater than the cost of the insurance premium.
What are contractual liability riders?
Getting coverage for your contractual liability does not necessarily mean you will need a whole new business insurance policy. You may be able to add contractual liability insurance coverage to your existing business insurance package.
An insurance add-on, also called a rider or an endorsement, are optional additions to an insurance policy that can help extend your coverage.
You’re probably already familiar with some insurance riders:
- If you buy auto insurance and your insurer offers 24/7 roadside assistance for a small fee, that’s a rider on your auto policy.
- If you’re a restaurant owner and you opt to add protection against food spoilage to your commercial property insurance, that’s a rider, too.
Likewise, with some carriers, you can add a contractual liability endorsement to your commercial general liability policy. These riders come in two flavors:
- A blanket contractual liability endorsement. A blanket rider covers every contract you enter into. While this is super convenient, it can be expensive.
- A standard contractual liability endorsement. A standard endorsement requires you to list each contract you want covered. This rider is less expensive than blanket coverage and it can be a good choice if you only have a select number of contracts. The downside to this type of rider is that if you accidentally forget to add a contract to the policy, it won’t be covered.
