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Contractual liability insurance

A layer of protection when working with another party under contract.

What is contractual liability insurance?

Contractual liability insurance helps protect your business against risk you assume when entering into a contract.

Contractual liability and hold harmless agreements

When you sign a contract to work with someone else, you assume some liability for their work on their behalf. Contractual liability insurance is coverage that helps you out when the contract you enter has a “hold harmless” clause.

A hold harmless agreement or indemnity agreement basically means that if something happens while under contract, you’re responsible, not them. It’s a risk management tactic that protects the person issuing a contract from liability claims and financial losses.

For example, say you’re a plumber working under a general contractor and signed a subcontractor contract with a hold harmless clause. If you break a pipe that results in significant water damage to the property, your plumbing business, and only your business, will be liable for the damages, defense costs and any resulting lawsuit.

Even if the property owner sues the general contractor, a hold harmless clause means you’ll have to pay for the contractor’s legal fees and any damages awarded in the lawsuit.

So this basically means that when you enter into a contract, you assume all of the risk that’s associated with your work while the general contractor assumes zero. This is where a contractual liability coverage comes in handy.

Why you might need contractual liability insurance

Any business that works on a contractual basis with other businesses should consider carrying contractual liability insurance. It adds a layer of protection for you and your business that goes above and beyond general liability insurance.

A commercial general liability policy protects you when working directly for a homeowner or business. It helps you pay expenses if you’re held responsible for injuring someone (bodily injury) or property damage.

For example, if a homeowner hires you to perform a plumbing repair and you break a pipe that damages the homeowner’s furniture, your general liability coverage would likely step up and pay for the damage.

However, most general liability policies will exclude coverage when you do contract work for a third party, especially when the contract has a hold harmless clause. If your contract includes a hold harmless clause, you may no longer be protected by your general liability coverage.

What are a contractual liability riders?

Now, you may be thinking, “Wait! I gotta buy a whole new policy if I want to be covered for contract work?!”

Not necessarily; you might just need to add a rider.

In insurance, riders, also known as endorsements, are changes or additions to an insurance policy. You’re probably already familiar with some:

  • When you buy auto insurance and your insurer offer 24/7 roadside assistance for a small fee, that’s a rider on your auto policy.
  • If you live in an area known for earthquakes or hurricanes, you might have purchased riders for these disasters on your homeowners policy.

Likewise, you can add a contractual liability rider to your general liability policy. These riders come in two flavors:

  • Blanket contractual liability rider. A blanket rider covers every contract you enter into. All new contracts you sign are automatically covered. While this is super convenient, it can be expensive, which is why there’s also a:
  • Standard contractual liability rider. A standard contractual liability rider requires you to list every contract you want covered by the endorsement. This rider is less expensive than blanket coverage and a good choice if you only do contract work for a select group. The clear downside to this type of rider is that if you accidentally forget to add a contract to the policy, there will be no coverage for it.

Here’s the bottom line: when it comes to small business insurance, you need to know when you’re covered and what you’re covered for.

If you enter into a contract with a hold harmless clause, the insurance you’re carrying might not apply. That’s when contract liability insurance or contract liability riders can step up to keep your business moving to the next level.

Keep your insurance coverage simple with NEXT

Being a small business owner is complicated. Getting the insurance you need shouldn’t be.

NEXT is an insurance company that makes getting business insurance easy with our simple online application and 24/7 DIY access to manage, update, and optimize your coverage whenever you need to.

You can start a quote, customize your options and access your certificate of insurance online immediately — in about 10 minutes.

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Let’s find the coverage you need for your business

Business insurance is divided into different policies. We offer seven types so it's easy to design the coverage that fits your business.

General Liability insurance
General Liability

Protect yourself from accidents that cause physical injury or damaged property.

Professional Liability or Error and Omissions Insurance
Professional Liability/E&O

Shield yourself from lawsuits that claim your work errors caused financial losses.

Workers' Compensation Insurance
Workers’ Compensation

Cover medical bills and lost wages if your employees have an accident at work.

Commercial Auto Insurance
Commercial Auto

Stay on the road with coverage for dents, tows and damage to someone else’s vehicle.

Tools & Equipment Insurance
Tools & Equipment

Upgrade your general liability coverage to protect any gear that’s stolen, damaged or lost.

Commercial Property Insurance
Commercial Property

Keep your building, inventory and equipment protected from fire or water damage.

Business Owner’s Policy Insurance
Business Owner’s Policy

Combine general liability and commercial property into one policy to protect your business.

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* To the extent permitted by law, applicants are individually underwritten, not all applicants may qualify. Individual rates and savings vary and are subject to change. Discounts and savings are available where state laws and regulations allow, and may vary by state. Certain discounts apply to specific coverages only.
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Issuance of coverage is subject to underwriting. Not available in all states. Please see the policy for full terms, conditions and exclusions. Coverage is dependent on actual facts and circumstances giving rise to a claim. Next Insurance, Inc. and/or its affiliates is an insurance agency licensed to sell certain insurance products and may receive compensation from insurance companies for such sales. Policy obligations are the sole responsibility of the issuing insurance company. Refer to Legal Notices section for additional information.