Contractual Liability

Published: | Updated: January 6, 2017

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Definition - What does Contractual Liability mean?

A contractual liability is a responsibility or an obligation that a party must adhere to as per the terms of a contract that the party agreed to and signed. In the context of insurance, parties often purchase contractual liability insurance to help pay for any financial losses that may result from their failure to deliver or perform a service as stipulated in a contract they sign.

Insuranceopedia explains Contractual Liability

Upon the signing of formal contracts, each party involved becomes legally responsible to uphold their end of the agreement as detailed in the terms of conditions of the contract. For example, a farmer may be contractually obligated to provide a grocery store with 10,000 tomatoes a month. If the farmer breaches this contract by selling the 10,000 to a different grocery store, this can result in a lawsuit. Contractual liability insurance helps protect the insured against losses that can arise from liabilities such as this one.

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