Contractors often assume that if they have Public Liability insurance in place, they’re covered for what their contract asks them to do.
In many cases, that’s true.
But contractual liability is often where that assumption starts to break down.
A contractor can have the right policy for the right trade and still find themselves uninsured for part of the risk they’ve taken on. Not because anything has gone wrong with the insurer, and not because the wording is unusual but because the contract has created obligations the policy isn’t designed to cover.
That’s why contractual liability is not a claims issue. It’s a placement issue.
Public Liability insurance responds to legal liability arising from the insured’s activities, not every promise or obligation written into a contract.
A simple way to test it is this:
Would the contractor still be liable if the contract didn’t say it?
If yes, it may fall within standard PL cover. If no, the contract may have created an exposure the policy doesn’t respond to.
Some contractual liability is covered under a standard Public Liability policy, but only where it doesn’t extend beyond the insured’s underlying legal liability. The problem arises when contracts go further than that, and in practice, they often do.
Indemnities can shift risk beyond normal legal responsibility. Assumed liabilities can widen exposure significantly. Liquidated damages are a good example, they’re a contractual penalty and aren’t covered under standard PL.
Fitness for purpose clauses can be particularly risky because they turn the obligation from “doing the job competently” into “guaranteeing a result”. Warranties and performance promises can also increase what the contractor is responsible for. Just because a contract creates a financial loss, it doesn’t mean the policy will respond.
A common scenario is a contractor working under what looks like a standard commercial agreement.
The broker places Public Liability cover. Everything appears aligned, the trade is correct, the insurer is comfortable, and the policy fits the work being carried out. But the contract includes broad indemnities, delay penalties, and wording that effectively makes the contractor responsible for the end result, not just the workmanship.
When something goes wrong, the issue isn’t whether insurance exists. It’s whether anyone checked how far the contract actually went.
Because without that check, the assumption is simple:
“If I’ve got PL insurance, I must be covered for my contract.”
That’s where problems start.
Before placing cover, it’s worth stepping back and asking:
- What is the client actually signing
- Are they taking on additional liabilities?
- Are there penalties for delay or performance?
- Are warranties or guarantees being given?
- Is there exposure to financial loss?
- Does the contract go further than the policy?
These aren’t extra questions. They’re core placement checks.
The simplest way to explain it is this:
Just because it’s in the contract doesn’t mean it’s covered by insurance policy
Insurance is designed to respond to defined legal liability. Contracts can go further than that.
If the two don’t match, the gap often only becomes clear when a claim happens.
At Gem, we don’t see this as a technical insurance issue. We see it as a gap that often starts before the policy is even placed. It usually comes down to two things not lining up properly, what the client has agreed to in a contract, and what the insurance policy actually covers.
We help brokers look at both together, not separately.
That means reviewing what the client is being asked to sign, checking whether the insurance would actually respond if something goes wrong, and helping brokers explain any gaps clearly to their clients.
Because most of the time, the issue isn’t that there is no cover. It’s that the contract says one thing, and the insurance policy was built for something slightly different.
When those two things are aligned properly at the start, problems are avoided later. Clints get what they actually need, clarity, not assumptions.
If you’d like to talk through a contract-driven exposure, we’re always happy to help. Contact us at: admin@gemuw.com