Few provisions in general liability insurance policies are more misunderstood than contractual liability coverage. A scan of the basic insuring agreement in a CGL policy does not say that the insurer will cover liability that its insured assumes by way of contractual obligation. In fact, the basic insuring agreement doesn’t address this question at all. Contractual liability coverage enters the CGL policy as an exception to an exclusion. Because of this, it can be difficult to determine if coverage exists and what its scope is. It is possible, however, understand contractual liability coverage by starting from the underlying contract.
Provisions in which one of the parties agrees to indemnify the other occur in construction contracts, oil and gas contracts, day work drilling contracts, the lease of premises and a host of other contractual arrangements. Each one contains one or more of the following provisions: (1) the first party agrees to indemnify the second for the first party’s negligence or fault; (2) the first party indemnifies the second if both are at fault; (3) the first party indemnifies the second if the second party is solely at fault; and (4) the first party agrees to pay attorney fees and other costs incurred by the second in responding to an indemnified claim. (Some or all of these provisions may be limited by state law.)
