Insurance glossary · Contracts and certificates
contractual liability.
Contractual liability is the responsibility you take on for someone else’s losses when you sign a contract, like an indemnification clause. Your liability policy covers some of it, depending on the wording.
What is contractual liability in insurance?
It’s responsibility for someone else’s losses that you take on by signing a contract, most often through an indemnity or hold harmless clause. The law might not make you pay for a general contractor’s injury claim, but a subcontract can, and contractual liability coverage is what decides whether your insurance pays for that promise.
Does general liability cover contractual liability?
Partly. The standard general liability policy excludes liability you assume by contract, then gives two exceptions back: liability you’d have anyway without the contract, and liability you assume in an “insured contract.” Most indemnity clauses in subcontracts, leases and service agreements fit the insured contract definition, so they’re covered within the policy’s other terms.
What is an insured contract?
It’s a list in the general liability policy of agreements whose assumed liability is covered. It includes leases of premises, easements, certain municipal and railroad agreements, and a catch-all for any business contract where you take on another party’s tort liability for injury or damage to someone else. That catch-all is what makes a typical subcontract indemnity clause insurable.
Does my policy pay the other party’s legal defense costs?
Sometimes. If the contract also makes you responsible for the other party’s defense, the policy can pay those costs, either as damages within your limits or, when a list of conditions is met, by defending them directly. Because the other party usually isn’t an insured on your policy, contracts typically ask for additional insured status too, which gives them their own right to a defense.
Can an endorsement take contractual liability coverage away?
Yes. One common endorsement (CG 24 26) narrows the insured contract definition so it covers only claims caused at least in part by your work, not the other party’s sole fault. A stricter one (CG 21 39) removes the business-contract catch-all entirely, which leaves most indemnity clauses uninsured. Both can look harmless on a quote.
What’s the difference between contractual liability and a hold harmless agreement?
The hold harmless agreement is the promise in the contract. Contractual liability is the insurance term for the liability that promise creates, and contractual liability coverage is whether your policy pays for it. Reading both together tells you how much of the promise is insured.
Does contractual liability cover a promise to do good work?
Usually it doesn’t need to. A promise to do your work properly is generally treated as the same duty the law already imposes, not extra liability assumed by contract. Promises that go further, like agreeing to pay for any damage near your work regardless of fault, can fall into the exclusion.
What if state law voids the indemnity clause?
Then there’s nothing for the policy to pay on that part. Insurance covers valid contract promises, so where a state’s anti-indemnity law voids a clause covering the other party’s negligence, the insured contract coverage only reaches what’s left, often your own share of fault.
Does contractual liability work differently by state?
The policy wording is the same, but state law decides how much of an indemnity clause is valid and how courts read the exclusion. Texas and New York have the most case law, and Arizona reads the exclusion narrowly. The notes below cover Riza’s licensed states, and the hold harmless page covers every state’s anti-indemnity rule.
in the states where Riza is licensed.
Riza is a licensed insurance agency in New York, Colorado, Texas, Florida, Massachusetts, Arizona, Nevada, North Carolina, New Jersey and Georgia. Notes below cite the law they come from. Detailed write-ups cover Arizona, Nevada, Texas, North Carolina and New York. One-line notes for other licensed states appear with them when this term has one.
- ArizonaArizona reads the contractual liability exclusion narrowly: it reaches only liability for someone else that you take on, like an indemnity clause, not every breach of contract claim. The Arizona Supreme Court has also held the exclusion doesn’t defeat the duty to defend a negligence claim based on a duty the law already imposes. On dwelling contracts, state law limits any duty to defend to claims from your own work.Desert Mountain Props. v. Liberty Mut. Fire Ins. Co. (Ariz. App. 2010) · Teufel v. American Family Mut. Ins. Co. (Ariz. 2018) · A.R.S. § 32-1159.01contractors in Arizona →
- NevadaNo Nevada Supreme Court decision squarely reads the insured contract wording. In practice, a Nevada indemnity clause covers the other party’s own negligence only if it says so expressly, so a vaguely worded clause may not create the assumed liability the policy would cover. The insured generally carries the burden of showing an exception to an exclusion applies.George Brown Ins. Agency v. Star Ins. Co. (Nev. 2010) · Reyburn Lawn & Landscape v. Plaster Dev. Co. (Nev. 2011) · Zurich Am. Ins. Co. v. Ironshore Specialty Ins. Co. (Nev. 2021)contractors in Nevada →
- TexasThe Texas Supreme Court has held the exclusion applies when a contractor takes on liability beyond what the law already imposes, like promising to pay for damage to neighboring property, but not when it only promises to do good and workmanlike work. An indemnitee can’t recover even defense costs for its own negligence unless the clause says so expressly, and the Texas Anti-Indemnity Act limits most construction indemnity to your own share of fault.Gilbert Tex. Constr. v. Underwriters at Lloyd’s London (Tex. 2010) · Ewing Constr. Co. v. Amerisure Ins. Co. (Tex. 2014) · Fisk Elec. Co. v. Constructors & Assocs. (Tex. 1994)contractors in Texas →
- North CarolinaNo North Carolina appellate decision squarely reads the insured contract wording, and the state’s courts generally read exclusions narrowly. The practical limit is the state’s anti-indemnity law: a construction clause covering the other party’s own negligence, in whole or in part, is void, and a policy can only insure a valid promise.N.C.G.S. § 22B-1contractors in North Carolina →
- New YorkNew York’s top court has held that when a subcontract indemnity clause is void because the general contractor was partly negligent, the sub’s contractual liability coverage has nothing to pay. Clauses written “to the fullest extent permitted by law” can still be enforced, and insured, for the share of fault that isn’t the general contractor’s. That’s why New York contracts lean heavily on additional insured status as well.Itri Brick & Concrete Corp. v. Aetna Cas. & Sur. Co. (N.Y. 1997) · Brooks v. Judlau Contr., Inc. (N.Y. 2008) · N.Y. Gen. Oblig. Law § 5-322.1contractors in New York →
by trade.
- General contractorsYou take on contractual liability to owners and ask your subs to take it on to you, so the insured contract wording on every policy in the chain decides whether those promises are backed.
- PlumbingCommercial subcontracts usually include indemnity with a duty to defend, which makes the insured contract definition on your general liability worth checking at every renewal.
- HVACProperty management service agreements often carry broad one-way indemnity, so endorsements that narrow insured contract coverage matter more than they look.
- ElectricalTenant improvement contracts often ask you to indemnify several parties at once, all of which relies on the same insured contract coverage.
- Landscaping and property vendorsVendor agreements commonly include hold harmless clauses for slip-and-fall and property claims, which contractual liability coverage is meant to back.
where you’ll see it.
- Your general liability policyThe contractual liability exclusion and the definition of “insured contract.”
- Endorsements“Amendment of insured contract definition” or “contractual liability limitation” on the forms list.
- ContractsIndemnity, hold harmless and duty to defend clauses, plus a requirement that your insurance cover them.
back the promise you’re signing.
Send Riza the contract. We check the indemnity clause against your policy’s insured contract wording and endorsements, tell you which parts are insured and which aren’t, and flag forms that quietly narrow the coverage before you renew.
Get a quoterelated terms.
Coverage it touches: General liability