Illinois Casualty Insurance State Practice Exam

Contractual Liability Coverage protects against which type of liability?

1. Liability for workplace injuries

2. Liability assumed by the insured in contracts with hold harmless clauses

3. Covers liability for environmental damage

4. Protects against claims related to breaches of contract

The correct answer is: Liability assumed by the insured in contracts with hold harmless clauses

Contractual Liability Coverage is specifically designed to provide protection against liabilities that an insured assumes through contracts, especially those that include hold harmless or indemnity clauses. When a business enters into a contract, it may agree to take on certain liabilities that it would not normally have under law. For instance, if a contractor signs a contract to perform work on a property and agrees to hold the property owner harmless for any injuries or damages that occur as a result of that work, that is a liability that the contractor has assumed. This type of coverage would protect the contractor if claims arise from incidents related to that contract. In contrast, workplace injury liabilities typically fall under workers' compensation and are not covered by contractual liability insurance. Environmental damage claims often involve other types of coverage, such as pollution liability, and breaches of contract would necessitate different legal remedies and do not usually fall under standard liability coverage. Thus, the chosen option accurately reflects the essence of contractual liability coverage, focusing on the assumption of risk through legally binding agreements.