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Is Coverage Hiding in Your Insured Contracts?

By Paul A. Rose and Bridget A. Franklin
February 29, 2016

Contractual liability frequently is excluded from coverage in Commercial General Liability (“CGL”) policies. However, certain contractual liabilities, including “insured contracts,” typically are covered under CGL policies as a result of exceptions to the general contractual liability exclusion. Policyholders may be less inclined to consider the prospects of such coverage when the “insured contract” is not characterized as an elevator maintenance agreement, a railroad sidetrack agreement, or some other type of agreement specifically referenced in the policy as being an insured contract.

In fact, however, CGL policies commonly define “insured contracts” as including that part of an agreement in which the insured assumes the “tort liability of another party to pay for 'bodily injury' or 'property damage' to a third person or organization.” ISO form CG 00 01 12 04. In some polices, the indemnitee may even be included as an “additional insured,” allowing an indemnitee to directly assert coverage under its indemnitor's insurance policy. In addition, some courts allow an indemnitee who is not listed as an “additional insured” to bring a direct action against an insurer.

Of course, policyholders and insurers are not always in agreement when it comes to interpreting the insured contract exception to the contractual liability exclusion. Courts often disagree with each other about such matters, as well. This article summarizes certain issues that may arise when a policyholder, or its indemnitee, asserts coverage for damages extending from an insured contract.

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