What is Blanket Contractual Liability?
Blanket Contractual Liability insurance is a type of liability insurance that covers all contracts where the insured is assuming liability.
It is typically used when businesses work with third parties. According to the International Risk Management Institute (IRMI), Blanket Contractual Liability Insurance is “coverage applying to all liability assumed by the insured in contracts, whether reported to the insurer or not. “For example, if an insured enters a new contract and assumes liability after their Blanket Contractual Liability insurance is in place, they have coverage for this risk and are not obligated to tell their insurer about it.”
Blanket contractual Liability can also be named “Hold harmless” or “indemnity” Agreements. These are basic agreements that go into the General Liability Coverage. It expresses that Party A (Indemnitor) promises to pay for whatever loss Party B (the indemnitee) faces. In other words, the purpose of the hold harmless agreement is to transfer the risk of monetary loss from the Indemnitee to the Indemnitor.
How does Blanket Contractual Liability work?
Blanket Contractual Liability is thought to be applicable to agreements business may sign, for example, contracts. It covers business A from whatever liability business B is carrying, without having to specify any risk. To clarify, here is an example of Blanket Contractual Liability insurance and how it works:
Conference speaker A from company A has invited company B, C and D to present their services in an event hosted by A. Companies B, C and D would have to be included in A’s property and Casualty policy as an endorsement. This endorsement would state the blanket contractual liability, covering A from any wrongdoings, willful or not, from B, C and D. If B, C and D took their own booth to the conference, and a cardboard piece fell and injured someone, A would be covered from liability thanks to the Blanket Contractual Liability insurance policy in which they included B, C and D.
According to Investopedia “A business with a blanket contractual liability insurance policy may still want to purchase a separate liability policy to protect against a specific risk, even if only for the short-term.”
Types of Agreements
There are five types Blanket Contractual Liability agreements, that serve different purposes:
- Lease of premises: For tenants and property owners. Identifies and describes what is being leased.
- Sidetrack agreements: An agreement between a property owner and a railroad company that adds specific exclusions to the coverage provided by a liability insurance policy.
- License or easement: Licenses and Easements are agreements used in Real Estate. Licenses are what constitutes and certifies the ownership of property. Easements on the other hand are agreements in which an owner gives a third party the power to decide over property.
- Elevator maintenance: Elevator maintenance agreements are formed between the owners and a third-party vendor to ensure performance and longevity of elevator systems.
- Contract to indemnify a municipality: This is an indemnity agreement. A contract that holds a business or company harmless for any burden, loss, or damage. Also ensures proper compensation is available for loss or damage.
Why is Blanket Contractual Liability Insurance important?
Because even though it is not required, it is an extra layer of protection to businesses that work with third parties. It is important to highlight the fact that despite having a Blanket Contractual Liability Policy, in this case from A the other parties (B, C and D) should also have their own liability coverages in place. In most cases, it will be asked from businesses that they prove that it has insurance by a specific deadline.
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