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Contractual Liability - Explained


All individuals and companies are subject to a wide range of potential liabilities imposed upon them at law but these liabilities may also be increased by the assumption of additional liability under the terms of a contract. This is contractual liability or liability assumed under contract.

 

What is liability assumed under contract? 

It is commonplace for contracting parties, to impose terms that extend the legal liability of the party they are contracting with and an example of this is agreeing that one party will assume responsibility for any claims for property damage that would otherwise have fallen on the other party.

It is essential that if you enter any agreement that extends your legal liability you must discuss this with your insurance broker or insurance company as is most cases, liability assumed under contract will be excluded from your policy.

This makes perfect sense as of course the insurer has agreed a premium for your policy that is based on what their understanding of your legal liabilities are.

These amendments to the liabilities of parties under contract can take the form of an indemnity agreement and hold harmless agreement.

It is important to note that not all such agreements actually increase a parties legal liability, in fact some are designed to remove liability from a party and again this should be notified to insurers as it may well be regarded by the insurer as an improved risk and therefore attract more competitive terms.

In all cases where you contract “out of” or “in to” liability that would otherwise exist you should inform your insurance broker or insurance company. If you are in any doubt regarding this or need any assistance with any insurance related queries please contact us directly.

 

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