Glossary

Contractual liability

Responsibility you take on by agreeing in a contract to cover another party's losses, and the limited way a general liability policy responds to it.

Also called: liability assumed under contract, contractual liability coverage, assumed liability

Contractual liability is the legal responsibility you accept in a contract, most often through an indemnity or hold harmless clause in which you agree to pay claims made against the other party. A general contractor's subcontract may require you to defend and indemnify the contractor for injuries arising from your work.

The ISO CGL (CG 00 01) excludes liability assumed in a contract, then gives most of it back. Exclusion b does not apply to liability you would have without the contract, or to liability assumed in an "insured contract." That definition includes a lease of premises, an easement, and, most important, the part of any other contract pertaining to your business under which you assume another party's tort liability to a third person for bodily injury or property damage.

Two pitfalls recur. The endorsement CG 21 39 (Contractual Liability Limitation) deletes that last category, stripping out the coverage a subcontract indemnity depends on. And state anti-indemnity statutes limit what a construction contract can make you assume, so the wording of the clause and the state both matter. Before signing, have the contract's insurance and indemnity sections read against your policy.

See contractual liability coverage and insured contracts for how this plays out, insured contract for the definition, and hold harmless agreement for the clause itself.

Last reviewed October 10, 2026

In the index now

Related terms

Insured contract A contract in which you assume another's tort liability, which the CGL covers despite its contractual liability exclusion if it fits a listed type. Hold harmless agreement A contract clause in which one party agrees to take on another party's liability for specified claims, usually those arising from the first party's work. Indemnity The principle that insurance restores your financial position after a loss, no better and no worse; also a contract promise to make good another's loss. Additional insured A person or business added by endorsement to someone else's liability policy so it can claim directly for suits tied to the policyholder's work or premises. Waiver of subrogation An endorsement in which an insurer gives up its right to recover a paid claim from a named party, usually one the policyholder contracted with.

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