What Does It Mean to 'Execute' an Insured Contract?
Contractual liability exclusions are frequently found in commercial general liability policies. These exclusions prevent coverage for "bodily injury" or "property damage," which the insured is obligated to pay — not because it has some tort-based liability, but because the relevant risk is assumed by the insured in a separate contract.
However, these policies often contain an exception to the contractual liability exclusion, in which the risk is assumed in an "insured contract." An insured contract is, among other things, a contract or agreement pertaining to the insured's business, in which the signor assumes the tort liability of another for bodily injury or property damage to a third party. While this may sound complicated, it is, in essence, referring to a classic indemnification agreement.
There is a catch, however. For there to be coverage under an insured contract, the "bodily injury" or "property damage" must occur "subsequent to the execution of the [insured] contract." The requirement that an insured contract be executed before an injury or property damage makes sense. It prevents parties to an accident from colluding after the fact in order to maximize insurance recovery by shifting liability to the entity with the greatest amount of coverage. However, figuring out when a contract was "executed" is not always easy. This article addresses the jurisdictional split in interpreting the requirement that an injury occur subsequent to the "execution" of the insured contract.
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