Understanding the Contractual Liability Endorsement: What Every Business Owner Needs to Know

By Jenny Holly Hansen | WBN News | May 27, 2025

In the world of business insurance, policy language can often feel like another language altogether. But there’s one clause that deserves your close attention—especially if your business relies on vendor agreements, leases, service contracts, or subcontractors. It’s called the Contractual Liability Endorsement, and it plays a vital role in determining what happens when your business assumes liability through a contract.

Here’s a breakdown of what it means, how it works, and why it can significantly impact your risk management strategy.

What Is Contractual Liability?

Contractual liability refers to the legal obligation one party assumes on behalf of another as part of a written agreement. For example, if you sign a lease for your commercial space and agree to "hold the landlord harmless" for certain types of claims—like a slip and fall injury in the parking lot—you’re taking on that liability.

Without specific insurance coverage in place, you could be on the hook for damages that weren’t originally your fault, simply because you agreed to it in a contract.

How the Contractual Liability Endorsement Works

Standard commercial general liability (CGL) policies usually include some coverage for contractual liability, but it’s often limited. That’s where the contractual liability endorsement comes in. It expands the scope of your coverage to include more types of liability you assume through written contracts.

This endorsement typically covers:

• Indemnity agreements where you promise to defend or reimburse another party.
• Hold harmless clauses which shift liability to your business.
• Assumed liability for third-party bodily injury or property damage caused in the course of your operations.

Why It Matters for Your Business

Let’s say you run a construction company. You hire subcontractors and often enter into contracts where you assume their liabilities. If a subcontractor causes damage or injury and you’ve agreed to take on the liability, your insurer may deny the claim unless you have this endorsement in place.

Or imagine you’re leasing retail space and the lease requires you to cover certain liabilities normally borne by the landlord. Without this endorsement, any claims resulting from those agreed-upon responsibilities may not be covered.

Bottom line: if you’re signing contracts that contain indemnification or hold harmless provisions—and most businesses are—you need this coverage.

Not All Contracts Are Covered

It’s also important to understand that coverage isn’t universal. The endorsement won’t apply to:

• Oral agreements
• Contracts not related to your business operations
• Liabilities for intentional wrongdoing
• Professional services (unless otherwise endorsed)

That’s why it’s critical to have your broker review the exact wording of your contracts alongside your insurance policy. Gaps in coverage can be costly.

The Risk of Going Without It

Without a contractual liability endorsement:

• Your insurance may not respond to claims where you’ve assumed liability.
• You may be forced to pay legal fees, settlements, or damages out of pocket.
• You could breach a contract by failing to meet the insurance requirements, putting your business relationship—and your reputation—at risk.

Final Thoughts

For many businesses, contracts are the foundation of daily operations. But with contracts comes responsibility—and risk. The contractual liability endorsement is one of those behind-the-scenes protections that can make all the difference when something goes wrong.

If you’re unsure whether your policy includes this coverage—or whether your current limits are sufficient—talk to your broker. A small endorsement can go a long way toward protecting your business from contract-related claims that otherwise wouldn’t be covered.

Let’s Keep Talking:

Jenny is a business insurance broker with Waypoint Insurance. With 19 years experience, she will well versed in the technical aspects of business coverages.

She can be reached at 604-317-6755 or jholly-hansen@wbnn.news. Connect with Jenny on LinkedIn at https://www.linkedin.com/in/jenny-holly-hansen-365b691b/.  Connect with Jenny at BlueSky: https://bsky.app/profile/jennyhollyhansen.bsky.social

Let’s Meet Up:

Jenny Holly Hansen is a cohost with Chris Sturges of the Langley Impact Networking Group. You are welcome to join us on Thursday’s from 4pm to 6pm at: Sidebar Bar and Grill: 100b - 20018 83A Avenue, Langley, BC V2Y 3R4

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