Contractual Liability Insurance
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You deal with many risk factors in the construction industry, especially as a business owner. From subcontractors failing to perform quality work to people getting injured. Your standard commercial insurance policy handles many common occurrences, but one area it typically doesn’t cover is contractual liability insurance.

Contractual Liability Insurance

What is Contractual Liability Insurance?

This type of coverage is useful for situations where you take responsibility for any damages or losses from another party, such as a subcontractor.

Contractual liability insurance gives you protection against the financial impact resulting from this assumed risk. Here are three things to know before you decide to purchase this type of insurance for your construction business.

Transferring Risk

You may work with multiple subcontractors throughout a construction project that has “hold harmless” or “indemnification” clauses in their contracts. These clauses shift the contractual liability risk for injuries, damages and losses from the subcontractor to your company (or vice versa, if you put these clauses in your contract). This risk transfer places the responsibility on the party with contractual liability, instead of the party with the indemnification clause in the contract.

Liability Coverage

Contractual liability insurance comes into play if your subcontractor gets sued when they have transferred the risk. This insurance covers the cost of the lawsuit, legal fees and damages to the subcontractor. You may end up defending against the lawsuit directly, depending on the situation.


In some cases, your existing commercial insurance policy does cover contractual liability. Two common exclusions you encounter are financial responsibilities that exist even without a contract and insured contract situations. The first exclusion applies to your responsibility that would be present even if the contract was not in place. The second exclusion covers insured contracts, which adds general liability coverage to six specific types of contracts that sometimes overlap with your contractual responsibilities.

You don’t want the risk of lawsuits to stop your construction company from growing and thriving. It’s important to understand the protection offered by contractual liability insurance and how it helps protect you against major financial damages and transfers risk to the proper party.

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