Running your own business becomes harder by the day. If you’re not careful, you risk losing your customers and suffering a significant blow to your bottom line. Not to mention that in today’s climate, you can risk getting sued almost every step of the way.
That’s why investing in excellent business insurance plans is not an option but a necessity. These plans will protect you and your business and act as a cushion to fall back on when things don’t go your way.
One type of business insurance policy that’s unfortunately often overlooked is contractual liability insurance. It’s not included in the commercial general liability insurance, and yet it can prove to be lifesaving in a time of need. Let’s take a closer look to see what this type of insurance is, what its benefits are, and whether you need it.
What Is Contractual Liability Insurance?
Contractual liability insurance is a must if you’re running a business that primarily operates on a contractual basis. It will protect you against any liabilities that you’ve assumed when you’ve entered into a contract with a third party.
If you have general liability insurance, you and your business are protected when you’re working directly for another business or homeowner only. However, if you’re hired as a third-party business and enter into a contractual relationship, this insurance will not cover your liabilities, such as injuries to other people or damages to their property.
So, let’s say you’re an electrician who’s been hired directly by a homeowner. With general liability insurance, you won’t have much to worry about if you accidentally cause damage to the homeowner’s furniture while you work.
But, if you’ve been hired by another company to perform this job for a homeowner, any damages or injuries that occur will be all your responsibility. And this is where contractual liability insurance comes in handy. It will protect you from any liabilities and risks you undertake when a general contractor hires you.
Indemnity Agreement Puts You at Risk
The reason why it’s you who will be responsible for damages or injuries while you’re under a contract is because of an important section in contracts known as Indemnity Agreement, or commonly referred to as the Hold Harmless Clause.
By signing the Indemnity Agreement, you agree to take full responsibility for damages, injuries, or accidents that happen while you’re working, regardless of whose fault it is. In this situation, the general contractor assumes no risks at all, and it all falls back to you.
Even in a situation where the general contractor is facing a lawsuit from the injured party, it’s still you who will have to carry the costs of the lawsuit, and all the legal fees and awarded damages that accompany it.
It’s cases like these that make it a necessity to carry contractual liability insurance. It acts as your shield against liabilities that you assume as a business that operates on a contractual basis.
Types of Contractual Liability Insurance Policies
If you decide to invest in contractual liability insurance, you should know that there are two different varieties of it:
- Standard contractual liability
- Blanket contractual liability
Some pros and cons accompany both of these policies, and which one will suit you better depends entirely on you, your circumstances, and your preferences.
Standard Contractual Liability Insurance Policy
Should you opt for the standard contractual liability insurance, you’ll be required to list every single one of your contracts in the policy. Each contract you have will need to be listed on a separate page within the policy, and there’s one glaring disadvantage to this — if a contract’s not listed, you’ll get no coverage.
What this means is that if you forget to list a contract, or you sign a new one after you’ve taken this insurance, that contract will not be included in your coverage. You alone will be held responsible for all liabilities you’ve assumed under the contract.
So, always remember to include every contract on a separate page in the policy if you want to receive coverage for it.
Blanket Contractual Liability Policy
A better and more convenient option is to go for the blanket contractual liability insurance. With this type of contractual liability insurance, all of your contracts will be covered. You don’t have to list each contract separately, and you’ll receive coverage for any new contract you undertake as well.
This is a more complete insurance policy that will have you protected on all fronts, and the only downside is that it comes with a heftier price tag.
Michigan’s Top Contractual Liability Insurance Provider
At Melton McFadden, we have a team of experienced professionals who can ensure that you and your business receive the coverage that will keep you protected. We will work closely together with you to find the best policy that suits your needs and doesn’t undermine your business’s financial stability.
Our contractual liability insurance policies can meet the needs of any company, regardless of its size or niche. Don’t expose yourself to unnecessary risks and liabilities. Contact us to find out what we can do for you and how we can protect your business.