Contingent Liability Insurance

Starting and growing a business is no small venture, and you want to protect your livelihood in case of an unexpected disaster. Fortunately, having contingent liability insurance can help your business financially recover in case a problem arises in the future. This coverage can apply to many types of situations outside your control that could lead to major losses, such as product warranties, loan guarantees, ongoing lawsuits, and even government investigations.

An independent insurance agent can help you get set up with the right contingent liability insurance and other types of business liability insurance for your unique company. They'll ensure you have all the protection necessary for risks that may arise in the future. But first, here's a behind-the-scenes look at what contingent liability insurance is, what it covers, and why it's necessary.

What Is Contingent Liability Insurance?

Contingent liability insurance is a type of business insurance that protects businesses against losses that can arise from unforeseen future events that are outside of their control. This coverage is also referred to as indirect liability and vicarious liability. 

It can protect your business against many different risks, including losses that arise from product warranties and accidents caused by contractors or subcontractors your business has hired. 

Primary liability vs. contingent liability

• Primary liability: A direct, primary liability exposure occurs on a business's premises or as a result of operations conducted away from those premises.
• Contingent liability: A contingent liability, or indirect liability, occurs because of the outcome of a certain event.

Every business needs the right coverage for primary liabilities, though many businesses can also benefit from having protection against contingent liabilities. 

How Contingent Liability Insurance Works

Say you hire a contractor to paint your building, and while doing the job, they drop a paint can that hits a customer walking into your business. You could be held liable for both the medical bills and the cost of a lawsuit if they decide to sue. While the painting company should technically be liable, if they are uninsured, underinsured, or not properly licensed, your company could be held liable for the damage. 

It’s not just direct contractors that come with vicarious or indirect liability. If they hire a subcontractor who causes an injury on your business premises, the liability may make its way back to you and your business. 

Employees are another common source of contingent liability, and your business can absolutely be held liable for their actions. Contingent or secondary liability insurance can protect your business against losses caused by the actions of employees, subcontractors, outsourced vendors, and third-party service providers. 

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Common Sources of Contingent Liability

It’s important to know your business's sources of indirect liability. Here are some of the most common sources of vicarious liability:

• Employees: Legally, your employees must be acting within the scope of their job duties for liability to transfer to you or your business. It makes no difference whether they fail to follow your directions or an accident happens due to the actions they perform while doing their job. Your business is liable.
• Independent contractors: While hiring an independent contractor should shield you from liability issues, that is not always the case; they come with some indirect liability. You should always verify that the independent contractors you hire are fully insured and bonded. If they lack insurance or are underinsured, you could face a lawsuit. Additionally, if your business hires a contractor not qualified to do the work, liability can fall to you. 
• Agents: Legally, an agent is anyone who works on behalf of someone else. Agents have the authority to create or alter legal relationships between businesses and third parties, such as suppliers, customers, and even wholesalers. An agent is typically an independent contractor or employee. In most cases, liability would be shared between the agent and you as the principal of the business. This means that anyone injured by the agent's actions could come after both of you for damages. 

Luckily, contingent liability insurance can protect businesses against losses stemming from the actions of employees, independent contractors, agents, and other parties.

Who Needs Contingent Liability Insurance?

Many types of businesses and professionals can benefit from having contingent liability insurance, especially those that hire contractors and subcontractors to perform work on their behalf. Some of the professionals who most rely on contingent liability insurance include:

• Contractors
• Construction businesses
• Event planners
• Service providers
• Businesses that use subcontractors
• Professionals who rely on third-party services

An independent insurance agent can help you determine if your business needs contingent liability insurance and get you set up with the right policy.

How Contingent Liability Insurance Can Protect Your Business

The truth is, there's no way to completely escape vicarious liability unless you are the sole employee at a business and never hire outside contractors or agents. Fortunately, there are insurance products that can protect you and your business from mistakes made by employees and contractors. 

Here are some types of insurance that offer contingent liability protection:

• General liability insurance: This offers a variety of protections, and one is indirect liability. A general liability policy for a business offers the following coverages:
  • Bodily injury: This coverage protects you if a customer or client is injured on your property. It covers injuries and legal defense costs up to your policy limits and protects you if the injury is caused by the actions or inaction of your employees or contractors working for your business. 
  • Property damage: This covers damage to a client’s personal property. If you or one of your employees spills a cup of coffee on a client’s server, which not only damages the server but also causes data loss, this portion of your general liability policy can cover the damages, including a resulting lawsuit.
  • Personal injury: This covers issues of other types of personal harm, such as slander and libel. If one of your employees is overheard making false and slanderous statements about one of your clients and the client sues, the personal injury section of a general liability policy can pay for the damages. 
• Professional liability insurance: This protects you from mistakes or negligence that result in financial losses for your client. It can cover the cost of legal defense and any judgments or settlements. Malpractice insurance is a common example of errors and omissions coverage, but many types of professionals can benefit from these policies. Lawyers, real estate agents, IT professionals, insurance agents, and architects are all at risk of lawsuits due to mistakes or negligence committed by them or their employees. 
• Workers' compensation insurance: This can help cover the costs of work-related injuries or illnesses that happen to your employees on the job or due to work tasks. It also exempts your business from employee lawsuits for covered incidents.
• Commercial vehicle insurance: This can protect both the driver and your business if one of your employees drives a company car and causes an accident. Contingent auto liability can cover the cost of your business's legal defense in a related lawsuit as well.
• Contractual liability insurance: This can protect a business against liabilities it assumes when it signs a contract and is often a part of general liability insurance.
• Environmental liability insurance: This can protect a business against losses due to lawsuits stemming from claims of pollution.
• Occupational accident insurance: This can protect a business against losses for injured or ill independent contractors who don't qualify for workers' comp coverage. It also exempts the business from related lawsuits from the affected contractors.

An independent insurance agent can help your business get equipped with all the contingent liability insurance it needs through various types of coverage.

The Benefits of Contingent Liability Insurance

Having contingent liability insurance can enhance your business's risk protection. This coverage helps protect your business against financial losses due to the mistakes of others and from unforeseen circumstances, such as product warranties. 

A contingent liability policy can also help enhance your business's credibility and trust among its clients or customer base. Additionally, this coverage may be required in certain cases by business contracts or state regulations. An independent insurance agent can help you get equipped with all the necessary contingent liability coverage to satisfy these requirements. 

How Much Does Contingent Liability Insurance Cost?

The cost of contingent liability insurance can vary considerably depending on your unique business's risks and exposures. Typically, contingent liability coverage costs less than general liability insurance. Some factors that can influence the cost of these policies are:

• Business size and location
• Industry
• Contractor or subcontractor risks
• Coverage limits and deductibles
• Claims history

Whether your business relies on contractors, subcontractors, or other third-party services, and how often it relies on them, can greatly impact the cost of your premiums. An independent insurance agent can help you find affordable contingent liability insurance rates in your area. 

How to Get Contingent Liability Insurance

Accidents, mistakes, and lawsuits happen every day in the world of small businesses. You need to protect what you have built. Contingency insurance can help ensure you are covered when something happens. 

An independent insurance agent can help you determine what risks your business faces, as well as the best policy options to protect you and your business. Even better, they will do all the legwork of shopping for a policy and present you with the best options for your unique business and its exposures. 

There are a couple of things to consider when shopping for insurance that will protect you against contingent liability:

• Claim limit: The amount of coverage needed will vary depending on the industry you are in and your location. An agent specializing in your industry can help you determine proper coverage levels. 
• Defense costs: When shopping for a general liability or errors and omissions policy, see if defense costs are subtracted from your claim limit. If they are, this leaves less remaining coverage to pay off any resulting judgments or settlements. 

An independent insurance agent can help you select the best contingent liability insurance policy that includes all the protection necessary for your industry.

Here's How an Independent Insurance Agent Can Help

The general liability insurance provided by your business insurance policy might not offer all the protection your business needs against indirect liabilities. When you're ready to find the right contingent liability insurance, no one's better equipped to help than a local independent insurance agent. 

These agents have access to multiple contingent liability insurance companies near you, so they're free to shop and compare policies and rates for you. They'll provide you with a handful of contingent liability insurance quotes to choose from. And down the road, your agent can even help you file business insurance claims and update your coverage when necessary.

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FAQs About Contingent Liability Insurance