Contractual liability concerns accepting grey-area responsibility through agreements with other business stakeholders.
Standard liability policies exclude damages as a result of the insured's agreement to accept liabilities through certain contracts, such as hold harmless or indemnity agreements.
In order to be covered, the insured must pay a premium to remove the exclusions so that those obligations are paid as general liability claims.
Keeping the exclusion in the insurance policy does not relieve the insurance company from liability if a court would find the insured responsible in the absence of the contract.
Removing the contractual exclusions does not remove the exclusions to the general liability coverage, for example, a claim from a contract which anticipates bodily injury will not be paid.
It is complicated. Certain contracts fit the definition of insured contracts under standard CGL language:
1. Real estate leases except indemnification clauses for fire damage, which must be insured
through property coverage.
2. Railroad sidetrack agreements.
3. Easement or license agreements (except construction or demolition within fifty feet of a
railroad track).
4. Contracts with municipalities.
5. Elevator maintenance agreements
6. Blanket tort liability, as opposed to warranties or guarantees.
Some companies remove the blanket terminology to limit contractual liability.
Legal fees and costs become part of the limit of liability under the contractual liability unless the insured would be held responsible in the absence of the contract. In that case, legal fees and costs are covered in addition to the limit of liability.
As business became more complex and contract oriented, this clause has been added to and modified to meet the contemporary demand. Now, it's like Dr. Frankenstein's clause. It's alive, but not as simple as it could be.
Seek advise from your attorney and insurance agent when contemplating agreements with transfers of liability. These scenarios are very complex under general liability policies.