What Is Cross-Liability Coverage?

Cross-liability coverage is an endorsement that provides coverage for insurance policies that cover multiple parties and cover both parties if one makes a claim against the other. Cross-liability coverage treats the different parties covered under the same contract as if they have their own separate policies.

Understanding Cross-Liability Coverage

Cross-liability means that one insured party can sue another insured party when both parties are under the same policy. Standard liability insurance typically includes a cross-liability clause known as a Separation of Insureds agreement. The contract typically has phrasing similar to the following: “Every insured claimed against under this policy will be treated, at the time of the claim, as if they were the only insured under the policy.”

Commercial insurance contracts have cross-liability coverage. The clause allows the different parties included in the contract to be treated separately in certain situations while, in other situations, they are treated the same. In a case where the parties are treated separately during a claims suit, they are not all given a separate coverage limit. This difference means that an aggregate limit still applies to the total coverage provided by the policy.

Business liability insurance policies may exclude coverage for intercompany lawsuits, thus eliminating the "separation of insureds" feature in some cases. For example, the founding partners of a law firm may sue each other for damages or injuries that each party insists that the other caused. Companies that want to ensure against this type of risk will have to purchase an intercompany products suit exclusion.

Many commercial general liability insurance policies already have language addressing cross-liability coverage and do not have exclusions for this type of event. Since no exclusion is involved, a separate endorsement is unnecessary.

Cross-liability clauses are typically standard in a commercial general liability policy. However, some policies may exclude certain situations—one company director suing another, for example, or lawsuits brought by a company against its directors.

How Cross-Liability Coverage Works

As an example, consider an automobile company that shares a liability policy with its subsidiaries, which manufacture various parts. The parent company is responsible for assembling the vehicle while the subsidiaries make the components. Because of a faulty part, a number of road accidents occur resulting in claims made against the automobile manufacturer. Under the separation of insureds feature of the cross-liability coverage policy, the parent company sues one of its subsidiaries.

The cross-liability endorsement is one reason general liability insurance is so important to protect the financial assets of any business.

Key Takeaways

  • Cross-liability means that one insured party can sue another insured party when both parties are under the same policy.
  • A Separation of Insureds agreement means that parties under the same contract are treated as if they were the only party under the contract. 
  • Most commercial liability insurance policies already have language addressing cross-liability coverage.

There is no endorsement for cross liability under commercial general liability policies for good reason. The endorsement to provide cross-liability coverage has been included in the CGL policy itself since 1986. However, according to Insight Analysis, a media platform for insurance agents, many attorneys or consultants will request it anyway because they are unaware that coverage is already provided under commercial general liability.