Homer Smith Insurance Blog

Businesses can be held civilly and criminally accountable for their actions.  A business that harms another party, damages or destroys property belonging to another party can be sued or prosecuted. Savvy business owners protect against liability to third parties with a Commercial General Liability (CGL) policy.  The Commercial General Liability policy is a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations, as well as advertising and personal injury liability.

CGL insurance is designed to cover a given business that is described within the policy.  That is difficult enough in itself.  Even a small business engaged in activities that may be potentially risky to the environment pose a significant underwriting problem.  The insurer who provides a CGL must make some assumptions about the type of losses it is willing to cover and these relate closely to the operation of the business. One issue that can create contention in a CGL is contractual liability. Contractual liability confounds a CGL policy by extending the liability in ways the underwriters never intended.  It occurs when a covered business voluntarily agrees (in writing) to take over someone else's responsibility.

CGL's are designed and underwritten on the assumption that they are concerned only with the party that is listed on the policy. Taking on another business' liability through a contractual arrangement means that the policy is being asked to either defend or pay for the injuries or damages caused by an entity that it doesn't "know" – and generally at no additional premium. Understandably, most, CGLs exclude instances of contractual liability. 

If your company is being asked to step in to indemnify another company against a loss it, it is a situation requiring care.  You may be able to take care of the situation by endorsing your CGL to add the name of the other party as an additional insured. Or, if your insured company is a property owner and the other party is a contractor, you may be able to buy a special form of coverage called Owners and Contractors Protective Liability.  However, not every situation may be covered and you need to read the Policy language to determine what situations are insured. The contractual arrangement under a CGL has to be related to the type of operation insured by such policies. So, if you have a retail shop, hire a plumber and agree to cover their business if they are sued, your CGL policy may not help, because the written agreement has no relationship to your operations.

Before taking on any business relationships that may change your liability or risk, discuss your situation with your business insurance professional in Washington to be sure that you, your business and your related liability are handled efficiently and economically. This may mean that the best strategy for you is to have each party take care of their own insurance needs.