Insured contract

Many contracts ask you to take on someone else’s legal responsibility. A lease might say you’ll cover your landlord if a customer trips in your space. A subcontract might say you’ll defend the general contractor over injuries tied to your work. Those promises are hold harmlessHold harmless agreementA hold harmless agreement is a contract clause in which one party agrees to take financial responsibility for certain claims or losses so the other party doesn’t have to.Read the definition or indemnity clauses. An insured contract is how a general liability policy decides which of those promises it can cover.

How it works

Standard general liability policies have an exclusionExclusionAn exclusion is a provision in an insurance policy that removes coverage for specific causes, types of loss, property or activities the policy would otherwise cover.Read the definition for liability you assume under a contract. That exclusion has an exception: it doesn’t apply to liability assumed in an insured contract. So the definition decides whether a contractual promise is covered.

The standard definition names a few specific agreements, such as a lease of premises and an easement agreement. It then adds a broad catch-all: the part of any other contract related to your business where you assume another party’s tort liability to pay for bodily injury or property damage to a third person. Tort liability means liability the law would impose even without the contract.

A few points apply in many policies:

• It’s about injury and property damage claims. A promise to pay a client’s lost profits or a contract penalty usually isn’t covered.
• The injury or damage generally has to happen after the contract is signed.
• Insurers can narrow the definition by endorsementEndorsementAn endorsement is a written change to an insurance policy that adds, removes or modifies coverage, such as adding an additional insured or a new location.Read the definition, so check your own policy.
• Some states limit how far indemnity clauses can reach, especially in construction, so a lawyer should review a broad one.

Coverage stays subject to the policy’s terms, limits and exclusions.

An example

How it differs from additional insured status

Covering a party through an insured contract is different from making them an additional insuredAdditional insuredAn additional insured is a person or company, such as a landlord or client, added to your liability policy so it can protect them from claims tied to your work.Read the definition. Additional insured status gives the other party its own rights under your policy. An insured contract covers your promise to them. Contracts often ask for both.