How does the Contractual Liability exclusion function?

• A. It excludes liability arising from bodily injury only.
• B. It excludes liability assumed under contract, except where the contract is an insured contract or endorsements modify.
• C. It excludes liability for advertising injury.
• D. It excludes liability for property damage.

Answer: (B)

The key idea is that a General Liability policy generally does not cover the liability the insured takes on by signing a contract. When a contract requires the insured to indemnify or hold harmless another party for damages, that is considered liability the insured has assumed by contract. The Contractual Liability exclusion is built to exclude this kind of assumed liability, so the insurer isn’t on the hook for those contractual indemnities.

The proper exception is that some contracts are recognized as insured contracts under the policy. When a contract qualifies as an insured contract, the liability arising from that contract can be covered, rather than excluded. Endorsements can also modify how this exclusion applies—either broadening or narrowing the coverage related to contracts.

For a concrete sense of it: if you agree to indemnify a client for damages caused by your work, that indemnity is typically excluded unless the contract is an insured contract or an endorsement alters the rule. The other topics like bodily injury, advertising injury, or property damage by itself aren’t what this exclusion targets; it’s specifically about the liability you assume through contracts.