The CGL Policy Exclusion for Contractual Liability

The comprehensive general liability policy insures the policyholder against liability for personal injuries or property damage to third parties caused by the acts of the policyholder. There are various exclusions from such coverage in the standard CGL policy, including the exclusion for contractual liability.

"Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an "insured contract", reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of "bodily injury" or "property damage", provided:

(a) Liability to such party for, or for the cost of, that party's defense has also been assumed in the same "insured contract"; and

(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.

The exclusion for contractual liability thus provides that the CGL policy will not provide coverage for liability of the insured that the insured has agreed or contracted to assume. There are two exceptions to this exclusion:

First, the CGL policy will cover liability agreed to or contracted for by the insured if the liability would have been imposed on the insured even if there had there been no contract or agreement.

Second, the CGL policy will cover the insured if the liability is contracted for or agreed to in a limited number of agreements known as "insured contracts" and the liability is for personal injury or property damage occurring after the insured contract is agreed to.

"Insured contracts" not excluded from CGL coverage by Exclusion B -- Contractual Liability--include:

• a lease of business premises,
  
• sidetrack agreements setting up a sidetrack from a railroad to a business,
  
• property easements or licenses (except regarding construction, demolition, and the area within 50 feet of a railroad),
  
• agreements required by ordinance to indemnify a municipality,
  
• elevator maintenance agreements, and
  
• agreements pertaining to the insured's business and providing for the assumption of tort liability to a third person or entity. There are exceptions to this last category of insured contracts so that coverage is not provided under the CGL policy for the insured's indemnity for railroad construction or demolition operations or for professional liability of an architect, engineer, or surveyor.

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