How does contractual liability work?

Does your client know what they are agreeing to when they sign a new contract?

Contractual liability is the liability that one party assumes on behalf of another under a contract.

Common law requires each party to be responsible for their own acts and omissions, however when a contract is agreed to, contractual liability can change this responsibility.  

From an underwriting perspective, contracts are acceptable where the obligation or liability in the contract would have existed even if not noted in the contract. An example would be liabilities which would have been implied by law or statute in the absence of such contract or agreement such as merchantability, quality, fitness, or care of your products. This effectively maintains the position of common law.

A hold harmless clause is used as a release of liability in a contract that protects one party from injury or property damage caused by another party. 

Under most combined General Liability policies, liability assumed under contract is excluded. 

Underwriters will usually review a contract, and if the indemnity provisions are acceptable, they will note or designate the contract for the purposes of contractual liability i.e., the standard exclusion will not apply to this agreed contract. Typically though, a hold harmless agreement will not be agreed upon by the underwriter.

It is always recommended that clients seek to obtain contracts with as favourable terms as possible and they should seek legal advice when doing so.

Disclaimer: This information does not constitute legal or financial advice. We encourage you to seek your own professional advice in relation to the specific contract and how it allocates legal responsibilities and the insurance required for these obligations