What it means
Many liability policies cover more than one party, such as a business and its directors, or a landlord and a tenant, or several companies in a group. The trouble comes when one insured is harmed by another insured.
A policy without cross liability might treat them as a single entity, which could leave the claim unpaid. Cross liability coverage fixes this by applying the policy to each insured separately, as though each had its own insurance.
If a subcontractor injures an employee of the main contractor, and both are named on the policy, the injured party can still make a claim. The insurer handles it as it would a claim between two unconnected policyholders.
It is especially important on construction and event projects, where many parties are named on a single policy. A site might include the owner, the main contractor and several trades, all of whom work close together and could cause damage to one another's property or staff.
Terms vary, so some policies include a cross liability clause automatically while others require it to be added. It is worth reading the wording carefully and checking whether any exclusions remain, such as for claims between companies under common ownership.
For a manager, the practical question is simple: if one of the insured parties makes a mistake that harms another insured party, will the policy respond? A broker can confirm the answer and, if necessary, arrange for the clause to be added.
In practice
Real-world examples.
Example
A property developer and its main contractor are both named on a single construction liability policy. A crane operated by the contractor damages the developer's adjacent building, and cross liability coverage allows the developer to claim against the contractor's liability cover. Without the clause, the insurer might have argued that the developer was claiming against itself, because both parties sat on the same policy.
Example
A music festival organiser and the stage-building company share one public liability policy. A stage collapse injures a member of the organiser's staff, and the claim is paid because the policy treats each company separately. The staff member receives compensation for medical costs and lost earnings, and the organiser avoids a dispute with its own insurer.
Example
A group of four related companies shares one liability policy to save cost. When a delivery vehicle from one company damages a warehouse belonging to another, the cross liability clause allows the loss to be claimed. The group saves on premium by buying one policy, and still enjoys the protection of separate cover for each company.
Case study
Seen in the real world.
Stonehaven Developments is a fictional company, and this case is illustrative. It arranged one site liability policy naming itself, the main contractor and three specialist subcontractors, because it believed a joint policy would be cheaper.
During the project, a subcontractor's scaffolding fell and injured an employee of the main contractor. The insurer initially questioned the claim, since both businesses were insured under the same policy.
Because the policy contained a cross liability clause, the insurer accepted that each insured was to be treated separately, and the claim was paid. The developer's risk manager later made the clause a standard requirement in all project insurance arrangements. The risk manager also asked the broker to check the wording of every other policy in the project programme, which uncovered one gap that was fixed before the next site opened.
Watch out
Common mistakes.
- Assuming every shared policy automatically includes cross liability, when some require it to be added by endorsement. Ask the broker to confirm in writing that the clause is included and to show where it appears in the wording.
- Believing the clause removes all exclusions, when some policies still exclude claims between companies under common control. Some policies exclude claims between related companies, so it is worth checking whether common ownership changes the position.
- Ignoring it until a claim arises, when the wording should be checked before a project starts. Waiting until a claim arises is too late, because the insurer will apply the wording exactly as printed.
Questions
People also ask.
What problem does cross liability solve?
It stops an insurer from treating co-insured parties as a single entity, which could otherwise block claims between them. The effect is that each insured is treated as though it held a separate policy with the same insurer.
Where is it most common?
Construction, events, property management and group company arrangements, where several parties share one policy. It also appears in family and group arrangements where several companies or people share cover to reduce cost.
Who can confirm whether it applies?
An insurance broker or the insurer can read the policy wording and confirm the position in writing. Keep a copy of the confirmation with the project documents so that anyone reviewing the file later can find it easily.
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