- If a security company caused Injury or Damage while protecting a client’s property, they would expect the client to pay those damages. To protect themselves they would get the client to sign a contractual agreement that makes sure that client will assume (take over) the security company’s liability.
- The security company is an example of how the principal (the client) assumes the liability of the contractor (the security company). Sometimes, it could work the other way round - the contractor assumes the liability of the principal.
- Upward Example – the contractor indemnifies the principal
- The Insured is the building contractor who agrees to indemnify their employer (the shopping mall owners).
- During the building process the builder damaged a shopper’s computer. Instead of suing the builder, she sued the shopping mall since she blamed the shopping mall for not keeping her property safe.
- Before starting the renovations the builder contractually agreed to assume any liability that the shopping mall incurred as a result of the builder’s negligence.
- This meant that the builder’s liability policy responded to the claim against the shopping mall.
- Downward Example – the principal indemnifies the contractor
- The Insured is a shopping mall which contracts the services of a building contractor to revamp the mall. The contractor in turn hires various sub-contractors. Normally the contractor and each of the sub-contractors would buy their own liability cover for the damage or injury they may cause during the revamp.
- There are however some problems with this arrangement:
- The contractor and sub-contractors might not necessarily have suitable liability cover in force at the time of the loss
- If they each arranged their own liability insurance the combined cost would amount to more than the cost of a single policy issued to the Principal. These costs would undoubtedly be passed onto the Principal.
- To solve these problems the shopping mall could agree that any liability caused by the contractor or sub-contractors would fall on the mall and the mall’s liability insurance would respond.
- It is important to note that many Multimark type liability policies mostly only provide upwards cover (where the Insured covers their employer). The Camargue General Liability policy covers both upward and downward relationships.
- In order to enjoy cover for these contractually assumed liabilities, it is necessary for the Insured to disclose them to the underwriters upfront.