Glossary

Contractors rework coverage insures the cost of tearing out a contractor's work when defects in the work make its inclusion in the project unsafe, as well as the cost of replacing the defective work. The normal method of providing this coverage is by endorsement to the commercial general liability (CGL) policy. (There is no standard endorsement for this purpose, but insurers active in construction markets may have company-specific endorsements that add this coverage back.) For coverage to apply, the work must fail to meet contractual specifications or other industry standards that apply to the type of construction into which the materials were incorporated. There is no coverage with respect to purely cosmetic defects. A similar coverage, rip and tear coverage, covers the cost of tearing out bad work but not the cost of replacing it. The primary markets for rework and rip and tear coverages are concrete and masonry contractors.

A contractors limitation endorsement is virtually always attached to umbrella policies issued to contractors and construction-related entities imposing limits or exclusions on the umbrella's coverage with respect to certain exposures arising out of the construction operations. Some endorsements operate to make the umbrella coverage following form over the coverage provided for these exposures in the underlying policy. Other versions of the endorsement impose more restrictive conditions or even absolute exclusions. It is desirable to confirm that following form coverage is provided over explosion, collapse, underground property damage, damage to the work, and contractual liability coverage, as provided within the primary layer.

Contractual liability is liability imposed on an entity by the terms of a contract. As used in insurance, the term refers not to all contractually imposed liability but to the assumption of the other contracting party's liability under specified conditions.

Contractual liability insurance covers liability of the insured assumed in a contract. Under the standard commercial general liability (CGL) policy, such coverage is limited to liability assumed in any of a number of specifically defined insured contracts or to liability that the insured would have even in the absence of the contract.

A contractual liability insurance policy (CLIP) is an important financial instrument necessary to several industries. CLIPs are most commonly associated with service contracts but can be used in a variety of areas. It is a commercial insurance product that covers the contractual obligations of the insured (always a commercial entity). A full reimbursement CLIP would indemnify the insured commercial entity for all monies it expends to fulfill a contractual commitment. The insured's need to procure a CLIP can be driven by a regulatory requirement or simple economics.

Contractual risk transfer is the use of contractual obligations such as indemnity and exculpatory agreements, waivers of recovery rights, and insurance requirements to pass along to others what would otherwise be one's own risks of loss.

A contract attorney is lawyer typically hired by a law firm on a contract basis to handle a specific case or several cases. A contract attorney's work is typically of a temporary nature with no guaranteed employment term. The attorney agrees to do the work pursuant to an agreement they have with the hiring firm or attorney. It is often less costly for the law firm since it does not have the usual overhead of a salaried employee.

A contract bond guarantees the performance of obligations assumed in a contract by the principal (the party paying the premium for the bond) for the benefit of another contracting party (the obligee). This type of bond is utilized most often in the construction industry but does have application in other industries.

A contract carrier is a commercial individual or organization carrying persons or property of certain customers only, rather than the goods of or the public in general. Unlike a common carrier, a contract carrier has a right to choose or refuse to convey passengers or freight for payment.

Contract certainty Is a concept used in the London insurance market wherein all terms of a reinsurance agreement must be detailed and agreed upon prior to the inception date of the contract. Essentially, the idea of contract certainty is that each party will know exactly what the reinsurance product is that is being sold at the time it is being sold, so it can be priced correctly and so the purchaser knows exactly what it is buying without any later misunderstandings. The 9-month rule, which comes out of Part 23 of SSAP 62, requires that the reinsurance contract be finalized—reduced to written form and signed within 9 months after commencement of the policy period—but allows the contract to incept before the contract is finalized.