“Broad form contractual liability” refers to the Commercial General Liability (CGL) policy’s protection for liability you agree—by contract—to take on for someone else, such as in hold-harmless or indemnity clauses; in ISO’s CGL form, this works through an exception to the contractual-liability exclusion when the obligation fits the policy’s “insured contract” definition.
In that form, an “insured contract” includes certain common agreements (e.g., leases, sidetrack and easement agreements) and, crucially, “that part of any other contract…under which you assume the tort liability of another party” for bodily injury or property damage to a third person—i.e., the kind of risk transfer many contracts require.
When these conditions are met, the policy can respond to damages and may also defend the indemnitee you agreed to protect if the contract includes their defense and other policy conditions are satisfied. Public agencies commonly require this coverage in vendor contracts, often referencing the ISO CG 00 01 “insured contract” (the “f” definition), underscoring its role in managing third-party risk.
Sources of Liability
- By law
- for one's own negligent actions
- through vicarious liability (i.e. the actions of others, such as an employer's responsibility for their employee)
- By contract
- where one agrees to take on the financial consequences of the actions of another, including
- an indemnity agreement
- breach of contract
- where one agrees to take on the financial consequences of the actions of another, including
Parties Involved in an Indemnity Agreement
- Indemnitor: the party who promises to reimburse/defend another party from third-party claims
- Indemnitee: the party who benefits from an indemnitor's promise
- Third-party: the party filing a claim for damages against the indemnitee (and/or the indemnitor)
- These three parties are required for an indemnity agreement (aka hold harmless agreement/HHA), although the third party is not a party to the agreement itself
- An indemnity agreement is a form of noninsurance contractual risk transfer - it is not insurance
- The indemnitee still must pay the third-party for claims, regardless of whether they can collect from the indemnitor or their insurer
- Laws governing indemnity agreements vary by state
Coverage Overview
- Since 1986, a commercial general liability policy's broad form contractual liability (BFCL) provisions provide coverage for indemnity agreements (which are often part of a larger contract) on a blanket basis
- A blanket basis means automatic coverage for a range of contractual liability risks under a single limit, whether reported to an insurer or not
- There is also a blanket limited form
- For an indemnitee to have privity to (direct access to) an indemnitor's insurance contract, they must be listed as an additional insured
- As an additional insured, an indemnitee has direct financial recourse from both the indemnitor and its carrier (up to the policy limits the indemnitor purchased)
- Otherwise, the indemnitee only has recourse against the indemnitor
- Many insurers will not add an endorsement for BFCL because it's already included
- The question is whether BFCL is excluded by
- Contractual Liability Limitation Endorsement (CG 21 39)
- Amendment of Insured Contract Definition (CG 24 26)
Examples of Contractual Liability
-
via Indemnity Agreement: most real estate leases have an HHA built into them which states a landlord is not responsible for their tenant's negligent actions. A tenant (indemnitor) within a multi-tenant office hires an electrician to rewire the tenant's space. A separate tenant in the same building (third-party) plugs in an appliance and suffers a severe electrical shock as a result of the work done.
The third-party tenant sues the landlord for $150K in damages, who pays the full amount. The landlord, via HHA, demands recompense from the tenant whose negligent electrical work caused the injury. The indemnitor tenant is obligated to pay the landlord, regardless of whether it was the electrician's fault, and may tap into its own insurance (if available.) The indemnitor tenant and its carrier can subrogate against the electrician who did the faulty workmanship.
- via Breach of Contract: I agree to sell you a bicycle for $500. You send me a $100 deposit. Someone else offers me $750, so I sell it to them instead. You take me to small claims court to recoup your $100 for breach of contract. This type of liability is not intended to be covered by an insurer.
What's Covered by BFCL
- Torts (bodily injury or property damage) that occur after entering into a contract (indemnifying agreement), AND
- The liability assumed in a contract/agreement falls within the definition of "insured contract", which includes
- lease of premises (excluding fire damage)
- sidetrack agreement (for railroads)
- easement or license agreement (with caveats)
- indemnification of a municipality, unless work is being done for the municipality
- elevator maintenance agreements
- agreements usual and customary for a business and for which you've assumed liability by contract (i.e. risks you would be liable for regardless of the contract's presence)
- A key distinction on assumptions
- assumption of liability: assuming financial responsibility for someone else's legal obligation to pay damages to third parties
- assumption of duty: an obligation to act or not act that would not exist but for an agreement
What's Excluded
- Breach of contract, unless the breach results in bodily injury or property damage
- Construction/demolition operations near railroads
- Professional services provided by an architect, engineer, or surveyor, including their assumed liability