What is the purpose of contractual liability insurance?

Contractual liability insurance is designed to cover risks that arise from contractual agreements. This type of insurance is particularly important for businesses that enter into contracts in which they agree to assume responsibility for certain liabilities that might not ordinarily be covered by general liability insurance. It ensures that if a party suffers a loss due to a contractual obligation, such as indemnifying another party or assuming the liability for an injury or damage, the insurance will provide coverage for those specific risks.

The necessity for such insurance arises because standard liability policies might not include coverage for these contractual responsibilities. For example, if a contractor agrees to indemnify a property owner for injuries that occur on the job site, and a claim is made, contractual liability insurance would cover the contractor's liability per the terms of the contract.

This coverage helps protect businesses from the potentially significant financial consequences of failing to meet their contractual obligations, thus fostering a more secure environment for entering into various business agreements. In contrast, the other options pertain to different types of coverage and do not focus on the specific purpose of contractual liability insurance.