How Naming Principals on a Liability Policy Can be Problematic

How Naming Principals on a Liability Policy Can be Problematic

When taking out a liability policy for contract work, it’s important to be mindful of how it is worded.

For example, let’s say a business (the ‘contractor’) enters into a contract to do work for another business (the ‘Principal’). During the course of the contract however, the Principal ends up getting sued due to the contractor’s actions or negligence.

Because of scenarios like this, businesses entering into work contracts or agreements often require the Principal to be named on their liability policy as ‘co-insureds’.

However, there could be some potential problems with naming Principals on policies in this way. For example, the Principal might be able to make a claim under the policy that has no connection to the contract or to the work done.

This makes it essential to spell out the conditions and limits under which a Principal is named on the policy. The policy needs to state that the Principal is only included in relation to the contract, and only in case of the actions or omissions of the insured (that is, the contractor).

If you would like to know more about naming Principals on liability policies, or about liability insurance in general, get in touch with your local Reliance Partner.