To be in business means to sign contracts - and every one of those contracts requires that you agree to provide some guarantee. A common question is "will my insurance back me up on those guarantees?"
The answer can be complicated. For one thing, it's essential to determine if the contract is one of the types that your Liability coverage specifies as an "insured contract." Although other policy provisions can also apply (such as exclusions and limitations), if a particular contract isn't considered an "insured contract," your policy won't apply.
If you work in a specialized trade and want examples of policy options, see Contract Geologists Insurance for how tailored coverage can differ by profession.
Common examples of insured contracts
- Leases.
- Sidetrack agreements (made with a railroad if you have tracks crossing your property).
- Easement or license agreements.
- Obligations required by ordinance to indemnify a municipality.
- Elevator maintenance agreements.
Almost all Liability policies also include a broader provision that covers contracts under which your business assumes the "tort liability" of another party for bodily injury or property damage. "Tort liability" is defined as liability that would exist in the absence of a contract or agreement.
In other words, the liability you're assuming must arise from the negligence of the other party to the contract. If the injured person can sue this other party without reference to any contract or agreement ("tort liability"), then a contract under which your business agrees to assume this liability will be considered "insured."
Although the definition of "insured contract" is only the starting point for determining if Liability coverage applies, policies and circumstances vary. We can review the specific provisions of your current coverage as they might apply to your proposed contract and advise you about possible gaps; see Understanding Contract Liability Insurance. If you prefer, talk to an agent.
Frequently Asked Questions
What is an "insured contract"?
An "insured contract" is a defined policy term that lists certain agreements the insurer treats as covered; if a contract isn't on that list, the policy typically won't respond.
Does assuming another party's liability always make a contract "insured"?
Not always; the policy usually covers assumed liability only when it is "tort liability"—liability that would exist even without the contract, such as negligence.
Can an indemnity clause in a contract be excluded by my policy?
Yes; many liability policies include exclusions and limits that can prevent coverage for some indemnity agreements, so each contract should be reviewed against your policy language.
Who should I ask to review a contract for insurance coverage?
Ask your insurance representative or broker to review the contract and your policy language to identify gaps and options for additional coverage.