What Is Cross-Liability Coverage?
Cross-liability coverage, a key component in commercial insurance contracts, allows insured parties under the same policy to file claims against each other. This coverage operates by treating each insured as if they have their own policy, ensuring individual rights in legal disputes. Standard liability policies typically include this feature through a “Separation of Insureds” clause, although exclusions exist in some situations, like intercompany lawsuits. This ensures businesses maintain comprehensive coverage while navigating complex interactions between parties.
Key Takeaways
- Cross-liability coverage allows one insured party to sue another under the same policy, treating them as if they have separate insurance.
- This type of coverage is commonly included in commercial general liability policies through a clause known as “Separation of Insureds.”
- An aggregate limit applies to the total coverage in cross-liability policies, meaning shared coverage limits remain unchanged.
- Some policies may exclude intercompany lawsuits, removing the cross-liability feature in certain cases.
- Cross-liability coverage is vital for businesses to protect their financial assets against potential intra-party claims.
How Cross-Liability Coverage Works in Insurance
When two covered parties secure cross-liability coverage, one insured party can sue another insured party even when both parties are under the same policy. Standard liability insurance usually includes a cross-liability clause called a “Separation of Insureds” agreement.
A contract with cross-liability coverage usually states: “Every insured involved in a claim is treated as if they are the only insured.”
Commercial insurance contracts typically have cross-liability coverage. The clause allows the different parties included in the contract to be treated separately in certain situations (while in other situations, they are treated the same).
When parties are treated separately in a claim, they don’t receive separate coverage limits. This means an aggregate limit still applies to the policy’s total coverage. Business liability insurance may exclude coverage for intercompany lawsuits, which removes the “Separation of Insureds” feature.
For example, founding partners of a law firm might sue each other for alleged damages or injuries. Companies wanting this protection must purchase an intercompany product suit exclusion.
Many commercial general liability insurance policies include cross-liability coverage without exclusions for these events. Since no exclusion is involved, a separate endorsement is unnecessary. However, some policies have insured-versus-insured exclusions that eliminate cross-liability coverage.
Example: Cross-Liability Coverage in Action
Suppose there is an automobile company that shares a liability policy with its subsidiaries, which manufacture various parts. The parent company is responsible for assembling the vehicle, while the subsidiaries make the components. Because of a faulty part in one of the cars that the automobile company manufactures, a number of road accidents occur. This results in claims made against the automobile manufacturer. Under the Separation of Insureds feature of the cross-liability coverage policy, the parent company sues one of its subsidiaries.
The cross-liability endorsement is one reason general liability insurance is so important to protect the financial assets of any business.
The Bottom Line
Cross-liability coverage is an important clause in commercial insurance contracts, allowing insured parties to sue each other while under the same policy. This coverage treats each party as if they hold separate policies, which is crucial in protecting business assets in cases where claims are made between parties covered by the same insurance. However, it’s essential to be aware of exclusions, such as those for intercompany lawsuits, that may limit the effectiveness of this coverage. Businesses should evaluate their insurance needs carefully to ensure adequate protection against intra-policy claims.
