Why might insureds need separate coverage for contractual liability?

Why might insureds need separate coverage for contractual liability?

• A. Because many liability policies exclude liability assumed under contract.
• B. Because contracts automatically transfer risk to insurers.
• C. Because contractual liability is always included in standard policies.
• D. Because contracts create no exposure to third parties.

Answer: (A)

Contractual liability shows up when a contract makes you responsible for losses or damages you cause under the contract, such as indemnity or hold-harmless clauses. Many liability policies, by default, exclude or limit coverage for liability you assume under a contract. That means the risk tied to those contractual obligations may not be covered unless you buy separate contractual liability coverage. This type of coverage specifically insures the insured’s liability arising from contracts, providing defense and indemnity where the standard policy would leave a gap. In short, contracts don’t automatically transfer risk to the insurer, and standard policies don’t always cover contractual liability, even though contracts can create exposure to losses for third parties.

Contractual liability shows up when a contract makes you responsible for losses or damages you cause under the contract, such as indemnity or hold-harmless clauses. Many liability policies, by default, exclude or limit coverage for liability you assume under a contract. That means the risk tied to those contractual obligations may not be covered unless you buy separate contractual liability coverage. This type of coverage specifically insures the insured’s liability arising from contracts, providing defense and indemnity where the standard policy would leave a gap. In short, contracts don’t automatically transfer risk to the insurer, and standard policies don’t always cover contractual liability, even though contracts can create exposure to losses for third parties.