What Does Cross Liability Mean?
Cross liability is a feature of insurance contracts, most frequently found in commercial policies. This provision ensures coverage for the insured against another party that is insured under the same contract.
This is a particularly important feature because many commercial liability policies will include landlords, vendors, or customers of the insured as an additional insured, offering them protection under the policy.
For example, if an insured wants to sell their product at a retail store, the store may require the insured add the store as an additional insured on their policy so they’re protected should the insured’s product cause property damage, bodily injury, or some other type of financial loss to an end user. A cross liability clause allows the insured to have coverage under the policy if they are sued by the retail store and vice versa.
A cross liability clause is included as standard on most Commercial General Liability (CGL) policies as a way to separate the insureds. In some umbrella liability or professional liability policies though, there are exclusions for insured vs insured disputes that eliminate cross-liability coverage.
Insuranceopedia Explains Cross Liability
A cross liability clause on a commercial liability insurance policy allows insured parties to be protected under the policy against other parties insured under the same policy.
In essence, it allows the policy to apply separately to each insured party as if they had their own insurance independent of one another. That said, the total coverage applies collectively to all insured parties meaning the aggregate limit still applies to the total coverage provided under the policy.
Suppose a burger chain has partnered with a company that supplies them with condiments and legal complaints are filed against the burger chain for food poisoning. An investigation reveals that the condiments were responsible for the adverse health effects.
If both entities are insured under the same insurance, and the policy has a cross liability provision, the burger chain can still file a claim against the supplier and the supplier would be protected under that same policy.
For the purposes of the claim, the two parties will be treated as if they had separate policies, even though they are insured under a single contract.
There are exceptions where underwriters may add an insured vs insured exclusion to the policy eliminating coverage in certain situations such as for internal company disputes or lawsuits between the company and one or more of its directors.
Discussions around cross liability also usually involve severability of interest clauses present on most commercial general liability insurance policies.