Property and Casualty Insurance Basics Practice Test

Contractual liability insurance specifically addresses liability that an insured party assumes under a contract. This type of insurance is essential for businesses that enter into agreements that might hold them accountable for liabilities that they would not typically incur under general tort law.

For instance, if a company agrees to indemnify another party in a contract, this insurance can help cover the costs associated with claims arising from that indemnity obligation. Many companies engage in contracts that may expose them to heightened risks, such as construction contracts, service agreements, or lease arrangements, and contractual liability insurance provides protection against claims that derive from such contracts.

In contrast, general liability insurance primarily covers claims related to accidents that occur during normal operations, while personal injury coverage pertains to claims involving employees and their well-being. Property damage caused by contractors would generally fall under a different type of liability or property insurance but does not focus on the contractual obligations that might give rise to those claims. Therefore, option B accurately captures the core purpose of contractual liability insurance.