Cross Liability
A provision in liability insurance that treats each insured party as if they have separate policies, providing coverage when one insured party causes harm to another insured party under the same policy. This clause essentially waives the 'insured versus insured' exclusion that would normally prevent coverage between co-insureds. It's commonly found in commercial general liability and professional liability policies.
Example
“The construction company's liability policy included cross liability coverage, so when the electrical subcontractor's work caused a fire that damaged the plumbing contractor's equipment, the policy covered the claim between the two subcontractors.”
Memory Tip
Think 'Cross the bridge' - cross liability helps bridge coverage gaps between different parties on the same policy when they harm each other.
Why It Matters
Cross liability coverage is essential for businesses working with multiple parties under one policy, as it prevents coverage gaps when co-insureds cause damage to each other. Without this provision, expensive lawsuits between business partners, contractors, or subsidiaries could leave both parties without insurance protection, potentially leading to significant out-of-pocket expenses.
Common Misconception
Many business owners assume that if multiple parties are covered under the same liability policy, they're automatically protected against claims from each other. However, most policies contain 'insured versus insured' exclusions, meaning cross liability coverage must be specifically included or endorsed to provide this protection.
In Practice
ABC Construction has a $2 million general liability policy that covers both the main company and three subcontractors, with cross liability coverage included. When the electrical subcontractor's faulty wiring causes $150,000 in damage to the plumbing subcontractor's materials, the plumbing contractor files a claim. Thanks to cross liability coverage, the policy treats this as if the electrical contractor had a separate policy, and the claim is covered. Without this provision, both contractors would have been excluded from coverage under the 'insured versus insured' rule.
Etymology
The term 'cross' refers to claims that go across or between different insured parties, while 'liability' comes from Latin 'ligare' meaning to bind, referring to legal responsibility for damages.
Common Misspellings
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