If you own a business, you are probably well aware of the importance of having liability insurance. After all, there are a lot of things that can go wrong and leave you facing legal action. But understanding the intricacies of your Commercial General Liability (CGL) policy can be challenging, especially when it comes to the concept of an “insured contract.”
In essence, an insured contract is simply a legal agreement that transfers some or all of your liability to another party. This is typically done through indemnification or hold harmless agreements. The idea is that by signing such a contract, the other party is agreeing to defend and/or pay for any claims or damages that may arise from the work you are performing.
So, how does this relate to your CGL policy? Well, when you sign an insured contract, the other party essentially becomes an additional insured on your policy. This means that if a claim is made against them, your policy will provide coverage up to the limits of your policy. However, it`s important to note that this coverage only applies to the specific liabilities that were transferred via the insured contract.
For example, let`s say that you are a contractor working on a construction project. As part of your contract, you agree to indemnify the property owner against any claims or damages arising from your work. If someone is injured on the job site and sues the property owner, your CGL policy will provide coverage to both you and the property owner, up to your policy limits.
It`s worth noting that not all contracts qualify as insured contracts. In order to be covered, the contract must meet certain criteria outlined in your policy. Typically, this means that the contract must be in writing, must be signed prior to any incidents occurring, and must not contain any exclusions or limitations that would prevent coverage.
In conclusion, understanding the concept of an insured contract is essential for any business owner with a CGL policy. By knowing how your coverage works in these situations, you can ensure that you are adequately protected against potential liability claims. If you have any questions about your policy or the coverage it provides, be sure to consult with your insurance agent or legal counsel.
