Contractual liability

Contractual liability describes responsibility that a contract creates or allocates. It often appears when a customer requires a contractor to assume specified liability, defend the customer, or indemnify it for another party’s conduct. It does not mean that every contractual promise is an insured loss.

A contract can allocate a different risk

California Civil Code § 2772 uses indemnity as a clear example: one person agrees to save another from the legal consequences of specified conduct. IRMI’s explanation distinguishes that assumed liability from liability the insured already has because of its own negligence or other conduct.

For a general contractor, that distinction changes the claim review. An owner may allege that the contractor’s work damaged a building; the contractor may also have promised to defend or indemnify the owner for claims connected to the work. The bodily-injury or property-damage allegation and the contract promise are related, but they are not the same cause of action. A professional-services firm can face the same split when a client alleges an advice error and invokes a broader indemnity clause.

What the insurance file must answer

An indemnity clause does not, by itself, make the promisee an insured. The policy’s insured-contract language, exclusions, endorsements, and the actual claim determine whether the insurer owes anything. That is why additional insured status and contractual indemnity should be checked separately. A certificate is evidence of a policy transaction, not a substitute for reading the contract and endorsement; the sister library’s certificate explanation covers that mechanics question.

The exposure is often largest when the contract uses broad words—“any and all claims,” defense costs, completed operations, or another party’s negligence—while the policy or governing law is narrower. Capture the exact assumed conduct, claim types, defense trigger, and time period before deciding that the business has transferred the risk.

State law can limit the promise

There is no universal rule that every indemnity clause is enforceable as written. California’s construction-indemnity provisions provide one state-specific example: certain clauses seeking to protect a promisee from its sole negligence, and some design-professional arrangements, are limited by statute. That is an applied example, not a rule for every state.

The PDS question is therefore “what liability did this contract allocate, and who can sue if the work or advice goes wrong?” Coverage mechanics belong in the sister library; the contract’s scope and the allegations belong here.