Charmian Holmes
Historically, contractual liability cover has been hard to obtain – especially blanket cover and until recently, it was generally unaffordable for many SMEs. The good news is that a small number of insurers have recently begun offering it to SMEs.
Blanket contractual liability automatically covers liability assumed under all contracts entered into in the ordinary course of an insured’s business. As it’s not a universal panacea; here are some tips on what to look out for in some of the newly available products.
MECON offers an annual contractual liability policy to the construction industry and other sectors. But be careful, as it doesn’t cover:
- Failures to arrange or maintain the insurance required under the contract or by law;
- Liability or cost covered by other policies listed in the proposal form or notified to MECON;
- Claims for delays in performing under the contract.
- Damage to property under construction unless the insured also holds also a contract works policy.
- Punitive, exemplary and aggravated damages, liquidated damages or fines and penalties or deductible amounts payable under the principal’s program.
- Products liability claims or for liability assumed in relation to subcontractors (but this can be endorsed on the policy).
And it doesn’t allow releases from liability or costs that would have been recoverable at law unless the release, waiver or limitation is required by contract.
Edge Underwriting also has a range of products that offer contractual liability cover. Some are offered as umbrella contractual liability insurance sitting above a public and products liability insurance program. Exclusions to watch out for in their products include:
- Failure to perform the contract;
- Performance warranties or guarantees;
- Failure to arrange insurance or ensure that subcontractors have appropriate insurance;
- Punitive, exemplary and aggravated damages or fines and penalties.
Some of Edge Underwriting’s policies also cover principals as joint insureds, waiver of rights of subrogation against principals, primary coverage (i.e. allowing the principal’s policy to act as an excess of loss policy), cross liabilities and non-imputation but only where the insured is liable to the person claiming against the principal and it arises from the same facts and circumstances.
Few other insurers offer all these bells and whistles. One or two will limit the contractual liability exclusion so that the policy covers contracts entered into the normal or ordinary course of business or releases which result in no proportionate liability exclusion. This is useful, but it may not be sufficient for many businesses to properly mitigate their exposure for contractual liability. For example, there is still the problem of no coverage for fines, penalties, consequential loss, exemplary/aggravated damages and liquidated damages.
Policy conditions (like subrogation and compromise clauses) can still cause problems because they may not recognise the fact that the insurer has agreed to insure certain types of contracts or allow certain release to be given. In these cases, ask for non-imputation, waiver of subrogation and cross liability clauses to be endorsed on the policy by the insurer.
Even if a client has blanket contractual liability cover, it’s prudent to always check contract terms in the context of their insurance program. In fact, it’s probably more important to understand the extent of the protection of the extra cover and whether they need to negotiate changes to the contract for risks that are not covered.
The Fold’s Contract Review Service examines contracts in the context of the client’s insurance program to identify any gaps in coverage and recommends appropriate drafting changes to the client’s contract to align it with insurance coverage.
By Charmian Holmes