Does General Liability Insurance Cover Breach of Contract?
Learning goal: Know why general liability doesn't pay for a broken contract, and the narrow cases where contract-related claims may be covered.
Short answer
Generally not. General liability is for bodily injury and property damage you cause, not for failing to deliver what a contract promised. The Texas regulator gives the example of a contractor who misses a deadline: the policy won't pay those damages. Some liability you take on in an "insured contract," such as certain indemnity agreements, may be covered.
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The Fuller Picture
Business owners often expect their liability policy to protect them in any dispute with a client. But a contract dispute about late or unsatisfactory work is usually a business risk, not an insured accident. Knowing the difference helps you negotiate contracts and choose other coverage.
Key Takeaways
- Texas Department of Insurance: CGL policies exclude bodily injury or property damage "that you are obligated to pay because you assumed liability in a contract or agreement," with two exceptions.
- The exceptions: liability you would have had without the contract, and liability assumed in "an insured contract," as the policy defines it.
- In TDI's example, a contractor who misses a building deadline: "Your CGL policy will not provide coverage for any damages you have to pay because you failed to meet the deadline."
- A promise to indemnify another party for their negligence may be covered, depending on the wording of the indemnity agreement, TDI says.
- Claims that your professional work caused a financial loss belong to professional liability (E&O), not general liability.
Real-World Example
A late website, a broken contract
A web design studio signs a contract to launch a client's online store by November 1, with a $10,000 penalty for delay. The launch slips three weeks and the client demands the penalty. The studio's general liability insurer declines, because there's no bodily injury or property damage, just a missed contractual obligation. The studio's professional liability policy is also asked to review whether the client's lost sales claim falls under it.
Common Mistakes
- Assuming general liability covers any lawsuit from a client.
- Signing indemnity or penalty clauses without asking the insurer how they're treated.
- Confusing a contract dispute with a professional liability claim.
Interactive Exercise
Review a contract with your policy
Take your most common client contract and your liability policy.
Tick each step as you do it. Your checklist is saved in this browser.
Knowledge Check
Question: A contractor misses a contract deadline and owes the client $15,000 in agreed damages. According to the Texas regulator's example, does a CGL policy pay?
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- Coverage Builder: Answer a few questions about your home, vehicles, family and work, and see insurance topics worth researching for your situation, each linked to a plain-English explanation. It doesn’t tell you what to buy.
Related Insurance Terms
Related Scenarios
Questions to explore next
Questions readers often ask next about this topic:
- What is an insured contract in a liability policy?
- Does professional liability cover missed deadlines?
- What should I check in an indemnity clause?
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The factual claims on this page were checked against these sources. Rules and figures change, so check the source itself if you need to confirm the current version.
- Commercial general liability insuranceTexas Department of Insurance
Educational information, not advice: This lesson is for general education only, not legal, financial, or insurance advice. Actual coverage, discounts, and requirements depend on your policy’s wording, your insurer, and the laws of your state. Confirm specifics with your own insurer or a licensed agent before making a decision. Insurpedia does not sell insurance and does not recommend specific insurers. The contractual liability exclusion, its exceptions and the deadline example come from the Texas Department of Insurance.