Contingent Liability

What Does Contingent Liability Mean?

Contingent liability refers to the responsibility a company or corporation has due to being contractually bonded to a party at fault. In other words, these liabilities are not caused by the company’s employees or members; rather, they arise from the actions of independent contractors or representatives of other companies with whom the company is conducting business in some capacity.

Insuranceopedia Explains Contingent Liability

Even though contingent liabilities are not directly the company’s fault, they can still result in significant financial costs due to damages from lawsuits. A good commercial general liability policy can help companies mitigate the risks associated with contingent liabilities. Most general liability insurance policies cover third-party bodily injury and property damage claims, which are the most common types of contingent liability exposures.

For example, consider a hotel that hires an elevator repair company to service its elevators. If the repair company causes an injury related to the elevator within the hotel, both the elevator company and the hotel could be held liable. In this case, the hotel would face contingent liability. Because these situations can be expensive to defend even when the business did nothing wrong, factoring contingent liability into your coverage decisions affects how much small business insurance costs overall.