What is contractual liability coverage?

Every time your tree service signs a contract that includes an indemnification clause or hold-harmless agreement, you are assuming liability that would otherwise belong to the other party. Contractual liability coverage — which is included as part of the standard ISO Commercial General Liability (CGL) coverage form CG 00 01 — protects you when you are required to pay damages because of liability you assumed in a covered contract.

In the tree service industry, contractual liability triggers constantly. A typical service agreement with a property management company includes language like: 'Contractor agrees to indemnify and hold harmless the Property Manager from any claims arising out of Contractor's operations.' Without contractual liability coverage, if a third party is injured during your tree work and sues both you and the property manager, your GL policy would cover your own liability but not the liability you contractually assumed on behalf of the property manager. The contractual liability provision closes this gap.

The standard CGL policy defines 'insured contract' broadly to include leases of premises, sidetrack agreements, easement agreements, elevator maintenance agreements, and — most importantly for tree services — 'that part of any other contract or agreement pertaining to your business under which you assume the tort liability of another party.' This last category captures virtually every indemnification clause in a standard tree service contract. However, the coverage applies only to tort liability (negligence-based claims), not to contractual breaches or warranty claims.

There is a critical exception that tree service owners should understand: the CGL policy excludes contractual liability assumed under a contract for the named insured's sole negligence in some jurisdictions. Anti-indemnity statutes in states like Texas, California, New York, and others void contract provisions that require a party to indemnify another for the indemnitee's own negligence. These statutes vary significantly — some void only sole-negligence indemnity, others void broad-form indemnity entirely. Your contracts should be drafted to comply with the anti-indemnity laws of the state where work is performed.

For tree service companies, the practical takeaway is threefold. First, your standard CGL policy already includes contractual liability coverage, but verify that no endorsement has been added to restrict or exclude it. Second, review every contract you sign to understand the scope of liability you are assuming — an overly broad indemnification clause can create exposure that exceeds your policy limits. Third, ensure that the indemnification obligations in your contracts are mutual (both parties indemnify each other for their own negligence) and comply with applicable state anti-indemnity statutes. Have an attorney review your standard contract templates and any non-standard contracts before signing.