Cross-liability coverage is an underappreciated clause often incorporated within a commercial insurance contract. This aspect of the contract offers protection to both parties in the event of claims being lodged by one party against the other. In essence, the cross-liability coverage perceives all parties under the same contract as individually insured.
Cross-liability coverage comes into play when one insured party decides to pursue legal action against another, despite the fact they both are insured under the same policy. Typically, standard liability insurance does include a cross-liability clause known as a 'Separation of Insureds' agreement.
The language of such an insurance contract would probably resemble this: “Under this policy, every insured party claimed against will be seen, at the time of the claim, as if they were the only insured party under the policy.”
Commercial insurance contracts frequently incorporate cross-liability coverage. This clause allows distinct parties contracted to be treated as independent entities in certain scenarios, although they may be treated similarly in other situations.
It is crucial to note that while parties can be seen as separate entities during a claims suit, they aren’t given separate coverage limits. This translates into an aggregate limit still being applied to the policy's total coverage. Some business liability insurance policies exclude coverage for intercompany lawsuits, essentially eliminating the 'Separation of Insureds' feature.
One common example would be when the founding members of a legal firm decide to sue each other for damages or causalities each side argues were caused by the other. Companies wanting to be insured against such risks need to purchase an intercompany product suit exclusion insurance policy.
An impressive number of commercial general liability insurance policies implement language that pertains to cross-liability coverage. Usually, these do not come with exclusions for such events, and thus, a separate endorsement isn't necessary. However, there are liability policies that include insured-versus-insured exclusions which effectively terminate cross-liability coverage.
Imagine an automobile company sharing a liability policy with its subsidiaries, which manufacture different parts. If a faulty part leads to a series of road accidents which result in claims against the automaker, the parent company can sue one of its subsidiaries under the Separation of Insureds aspect of the cross-liability coverage policy.
To sum it up, a cross-liability endorsement is a primary reason why general liability insurance serves an integral role in safeguarding any business's financial assets.