Cross-liability is an addition that offers coverage for insurance policies to cover multiple insureds and provide cover for both parties if one makes a claim against the other insured. Cross-liability coverage handles the different insureds covered under the same contract as if they have their own individual policies.
Cross-liability coverage means that one insured person can claim another insured party who are covered under the same policy. Standard liability insurance normally includes a cross-liability clause known as the Separation of Insureds agreement. The contract normally has wording similar to the following: “Every insured claimed against in the insurance policy will be considered, at the time of the claim, as if they were the only insured under the insurance policy.”
Cross liability coverage is seen in Commercial insurance contracts. The cross-liability clause allows the different insured parties included in the insurance contract to be treated separately in certain cases while, in other cases, they are treated the same. In a scenario where the insureds are treated separately during a claims suit, they are not all given an individual coverage limit. This difference means that a combined limit still pertains to the total coverage offered by the policy.
Cross-liability clauses are normally standard in a commercial general liability policy. However, some policies may exclude certain circumstances—one company director filling law suit against another, for example, or court cases claimed by a company against its directors.
For instance, imagine an automobile company that shares a liability policy with its affiliates, which manufacture various parts. The parent company is responsible for assembling the vehicle while the sister company make the components. Due to a faulty part, a number of road accidents happen resulting in claims made against the automobile manufacturer. Under the separation of insured parties feature of the cross-liability coverage policy, the parent company sues one of its affiliates.
The cross-liability addition is one reason general liability insurance is so vital to secure the financial assets of any company.