July 22, 2019


Today’s business environment is a very tough jungle to navigate.  Technology and automation have enhanced our work product and provided tremendous efficiencies unlike any time in the past.  Along with that, changes to traditional business practices have come about as well.  More than ever, businesses are assuming liabilities through work contracts, vendor agreements, supplier agreements, leases and a host of other business contracts that can impose tremendous liability to the unprepared firm. The days of relying on purchase orders or verbal agreements are in the past.

How is a business owner to prepare for that?

What can your insurance program potentially do for you?

What can you do?

  1. A standard ISO General Liability Policy and a standard ISO Commercial Auto policy both exclude contractual liability, but through exceptions to the exclusion, provide some broad coverage for specific situations.
  2. An “insured contract” is one of them. Within the body of this exception, coverage may be granted for the assumption of tort liability of a third party.  The auto policy has an additional provision related to the rental or lease of an “auto”.
  3. These provisions are triggered by “bodily injury” or “property damage” that create liability for the insured as a result of an “occurrence” or “accident” and imparted by the indemnification agreement found in those third party contracts. Once this happens, the contractual process begins.
  4. Contracts usually also contain provisions requiring: specific limits of insurance, additional insured status, primary and non-contributory status, waiver of subrogation, notice of cancelation and potentially others. Does the contracting party’s insurance program provide for these provisions or perhaps could they be facing an unplanned retention?  Could they be in a “breach of contract” position?  The worst time to find out is after the loss.
  5. Under a standard ISO General Liability Policy, a third party may qualify as an Indemnitee under the Supplementary Payments provisions for coverage A – Bodily Injury and Property Damage and Coverage B – Personal and Advertising injury.
  6. How can these benefits impact policy limits for an “accident” or “occurrence”? Care must be taken in how limits are chosen and what benefits or provisions are extended to a third party.  These benefits/provisions can serve to dilute or erode the limits available for claims payments.  This could be financially disastrous.  Umbrella policies?  They can help insulate against the financial consequences if the damages turn catastrophic.

So, what are the conclusions?  Truly, the broad nature and encompassing grasp of contractual issues can be daunting.  The depth of analysis of this important topic is beyond the scope of this article but should serve as both a reminder and a warning that great caution should be observed when signing or executing any contract.  For additional information contact your broker and legal advisors.  Always seek to know and understand your risks in order to avoid the consequences.

MSIG refers to the U.S. subsidiary insurers of Mitsui Sumitomo Insurance Company, Limited, a member of MS & AD Insurance Group.  The insurers are managed by Mitsui Sumitomo Marine Management (U.S.A.), Inc. with offices at 15 Independence Boulevard, P.O. Box 4602, Warren, NJ  07059-0602, USA.