Business News Select | SMPost | Terms

Term: Cross Liability Coverage

6 Mar 2015

DEFINITION OF ‘CROSS LIABILITY COVERAGE’
An endorsement that provides coverage for insurance policies that cover multiple parties, and in which one of the parties is held liable for a claim made by another party on the same contract. Cross liability coverage treats the different parties in the contract as if they had their own separate policies.

INVESTOPEDIA EXPLAINS ‘CROSS LIABILITY COVERAGE’
Cross liability refers to the ability of one insured party to sue another insured party if both parties are under the same contract. Cross liability coverage is most frequently found in commercial insurance contracts. It allows the different parties on the contract to be treated separately in certain situations, while in other situations treated the same. In the case that the parties are treated separately during a claims suit, they are not all given a separate coverage limit. This means that an aggregate limit still applies to the total coverage provided by the policy.

For example, an automobile company shares a liability policy with its subsidiaries. The parent company is responsible for assembling the vehicle, while the subsidiaries make the parts and components. Because of a faulty part, a number of road accidents occur, resulting in a number of claims made against the automobile manufacturer. Using the separation of insureds feature of the cross liability coverage policy, the parent company sues one of its subsidiaries.

Business liability insurance policies may exclude coverage for inter-company lawsuits, thus eliminating the separation of insureds feature in some cases. For example, the founding partners of a law firm may sue each other for damages or injuries that each party insists that the other caused. Companies that want to insure against this type of risk will have to purchase an intercompany products suit coverage.

Many commercial general liability insurance policies already have language addressing cross liability coverage, and do not have exclusions for this type of event. This makes a separate endorsement unnecessary since there is no exclusion involved.

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