Insured Contract
Also known as: Insured Contract Exception
An insured contract is a term of art defined in the standard Commercial General Liability policy. The CGL contains a broad exclusion for liability the insured assumes under a contract, but it then carves back coverage for liability assumed under an "insured contract." The definition lists six specific categories, including leases of premises, sidetrack agreements, easement or license agreements, obligations to indemnify a municipality, elevator maintenance agreements, and — most importantly for most businesses — the tort liability of another party assumed in a written business contract or agreement.
For a small-business buyer, the insured-contract concept is what makes a signed hold harmless agreement actually insurable. When your customer's or GC's contract requires you to indemnify them for bodily injury and property damage arising from your operations, that assumed liability generally falls within the "insured contract" definition, so your CGL responds. Without this carve-back, the contractual-liability exclusion would leave you personally funding indemnity promises you make every time you sign a lease or subcontract. This is the plumbing behind everyday contractual liability coverage.
The nuance is that not every indemnity you sign qualifies. The definition covers tort liability of another assumed in a contract — it does not turn the CGL into a performance guarantee, and it will not cover assumed liability for pure economic loss, professional services, or another party's breach of contract. Reading a contract's indemnity language against the insured-contract definition — and against the indemnity concept generally — is how a broker confirms your promises are actually backed.
Mechanically, the definition lives in the ISO standard Commercial General Liability form CG 00 01, where Coverage A's contractual-liability exclusion first bars assumed liability and then expressly reinstates it for the promises that qualify as an insured contract.
Real-world scenario
Cedarline Millwork LLC, a 14-employee cabinet-installation subcontractor in Ohio, won a $340,000 scope of work building out a hotel lobby for a general contractor. To sign the subcontract, Cedarline had to accept a hold-harmless agreement in which it assumed the general contractor's tort liability for injuries arising from Cedarline's work. Cedarline's owner paid $8,400 a year for a general liability policy carrying a $1,000,000 per-occurrence limit, a $2,000,000 aggregate, and a $2,500 deductible, sitting under a $5,000,000 umbrella that cost an additional $2,900.
Nine weeks into the job, a hotel guest tripped over an unsecured pallet of Cedarline cabinets in a corridor and shattered a hip. Medical bills reached $180,000, lost wages and future care were pegged at $215,000, and the guest sued both the general contractor and Cedarline for $1,200,000. Because the general contractor had shifted its exposure to Cedarline through the signed contract, it demanded Cedarline's insurer step in and pay on its behalf.
This is exactly where the "insured contract" provision earned its keep. The subcontract qualified as an insured contract, so the policy's coverage for contractual liability applied to the liability Cedarline assumed for the GC. The carrier funded $130,000 in defense costs, negotiated a $625,000 settlement, and paid the general contractor's assumed share. Because the assumed defense and settlement were treated as inside the limit, together they eroded $755,000 of the $1,000,000 per-occurrence limit and left $245,000 of primary coverage before the umbrella would attach. Cedarline paid only its $2,500 deductible.
How it affects your premium
An "insured contract" grant is built into standard CGL forms, so it rarely carries a separate line-item charge. But how much contractual liability exposure you bring to the table heavily influences your overall premium and your underwriter's appetite. Key drivers include:
- Volume and dollar value of signed contracts — a shop assuming tort liability across dozens of six-figure subcontracts is rated higher than one with a handful of small jobs.
- Type of hold-harmless language — broad-form indemnity (assuming the other party's sole negligence) is riskier and pricier than intermediate or limited forms; see indemnitee vs. indemnitor.
- Industry and injury severity — construction, trucking, and habitational risks generate larger bodily-injury claims, raising the cost of the assumed liability.
- Requests for additional insured status and primary-and-noncontributory wording — upstream parties demanding these endorsements increase the carrier's exposure and premium.
- Waiver-of-subrogation obligations — contracts requiring a waiver of subrogation strip the insurer's recovery rights and typically add a small surcharge.
- Limits and umbrella structure — higher per-occurrence and aggregate limits driven by contract requirements push premium up.
- Loss history on assumed-liability claims — prior action-over or indemnity payouts signal contractual risk and harden pricing.
Common misconceptions
Myth: An insured contract is just any contract my business signs.
Reality: No — the CGL defines "insured contract" as six specific categories (leases of premises, sidetrack agreements, easements or license agreements, obligations to indemnify a municipality, elevator maintenance agreements, and the tort liability of another party assumed under most business contracts). A general purchase order or service agreement isn't automatically an insured contract unless it fits one of those buckets. See contractual liability.
Myth: If I sign a hold-harmless agreement, my CGL will cover every dollar I promised to pay.
Reality: Coverage applies only to tort liability you assumed for bodily injury or property damage that also falls within the policy's terms and limits. Purely contractual promises — like liquidated damages or a promise to repair your own defective work — are not covered, and payouts still erode your general liability limits.
Myth: The insured contract provision protects me even if I caused none of the harm.
Reality: It covers the liability you legally assumed for another party's tort exposure, but broad-form indemnity that reaches the other party's sole negligence is often restricted by anti-indemnity statutes and policy language, so the assumed obligation may be unenforceable or uncovered.
Frequently asked questions
What exactly is an insured contract in my general liability policy?
Why does the CGL exclude contractual liability but then add it back for insured contracts?
Does an insured contract replace naming someone as an additional insured?
What happens if my contract's indemnity is broader than my state allows?
Do defense costs for the other party count against my limits under an insured contract?
Sources cited
Need insured contract coverage?
Compare quotes from 10+ commercial insurance carriers in 5 minutes. Free, no contact info required.
Get My Quotes →