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Contractual Liability

Contractual Liability

Definition

Contractual Liability — 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.
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Related Terms

Contractual Liability Insurance

Insurance that 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.

Contractual Risk Transfer

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.

Hold Harmless Agreement

A provision in a contract that requires one contracting party to respond to certain legal liabilities of the other party. For example, construction contracts typically require the contractor to indemnify the owner with respect to the owner's liability to members of the public who are injured or whose property is damaged during the course of the contractor's operations. There are a number of types of hold harmless clauses, differentiated by the extent of the liabilities they transfer. The most commonly used types of clauses are the "broad," "intermediate," and "limited" form hold harmless clauses.

  • Limited form—Where Party A holds Party B harmless for suits arising out of Party A's sole negligence. Party B is thus protected when it is held vicariously responsible for the actions of Party A.
  • Intermediate form—Where Party A holds Party B harmless for suits alleging sole negligence of Party A or negligence of both parties.
  • Broad form—Where Party A holds Party B harmless for suit against Party B based on the sole negligence of A, joint negligence of A and B, or the sole negligence of B. Broad form hold harmless agreements are unenforceable in a number of states.

Indemnitee

The person or organization that is held harmless in a contract (by the indemnitor).

Indemnitor

The person or organization that holds another (the indemnitee) harmless in a contract.

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