Cross-Liability Exclusion

A cross-liability exclusion (sometimes phrased as an insured-versus-insured provision) governs what happens when one party covered by a policy brings a claim against another party covered by that same policy. A strict cross-liability exclusion bars coverage for these intramural suits, on the theory that a policy should not fund a fight between two of its own insureds. The concept is especially important on policies with multiple named insureds, joint ventures, and additional insureds, where one insured's negligence might injure another. It is the mirror image of, and interacts directly with, severability of interests.

For a small-business buyer, the practical question is whether your policy will defend you if a co-insured points the finger at you. Many general liability forms actually permit claims between insureds because the separation-of-insureds condition treats each insured as if it had its own policy — so an employee of one insured injured by another insured may still recover. However, directors and officers policies frequently retain a firm insured-versus-insured exclusion to stop collusive lawsuits among executives. Knowing which stance your policy takes tells you whether internal disputes are covered or a costly gap.

A key nuance: the presence or absence of a cross-liability exclusion changes the value of naming multiple parties on one policy. If you add a client or partner as an additional insured on a policy that bars insured-versus-insured claims, you may unintentionally block your own ability to recover from that co-insured after a loss. This overlaps with the anti-subrogation rule, which independently stops an insurer from suing its own insured. Before agreeing to broad additional-insured requirements, confirm how cross-liability and severability language interact so you preserve, not surrender, your recovery rights.