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Understanding Contractual Liability

Almost every general insurance policy will contain terms and conditions that may be impacted upon by contracts that you enter into.

Public & Products Liability and Professional Indemnity policies will usually include a specific Contractual Liability exclusion. So what is it?

Contractual Liability is liability that you wouldn’t have had if the contract didn’t exist. In other words, it’s liability that you agree to in the contract that is beyond what you would normally be liable for.

Unfortunately, contracts generally don’t have a specific clause entitled Contractual Liability that’s easy to identify, which is why it’s very important to provide your insurance adviser with a copy of all of your contracts so they can identify contract terms which may compromise your insurance cover.

Whilst “hold harmless” agreements and the like can often be found in an “Indemnity Clause” there nonetheless are often other indemnities provided throughout the contract. For this reason, it is important to provide a copy of the entire contract to your adviser not just the “Insurance” clause.

The other common insurance clause impacted upon by various contracts is the Subrogation clause. This is a condition found in most general insurance policies and basically states that where there is an opportunity for the insurer to recover from someone else they have a right to do so. Furthermore, the condition usually states that you must not waive this right of recovery. Unfortunately, many contracts require you to do just that!

These problem clauses and contracts are not insurmountable! Once we are aware of the issue, we can approach your insurer to seek a resolution. For particularly onerous clauses insurers may not agree to extend cover or they may wish to charge additional premium to extend cover. Conversely for relatively minor contractual issues your insurer may simply agree to extend cover. The key is having your contract reviewed so any issues can be identified before you have a claim.