Cross liability clause
What it means
A cross liability clause treats each insured under a policy as though it held a separate policy of its own. Where several entities are named as insured, one of them can bring a claim against another and the policy will respond.
Without the clause, a liability policy will generally not cover a claim by one insured against another, because insurers do not insure parties against each other under the same contract. Groups of related companies and joint ventures need the clause for that reason.
Also called: cross liability, cross liability clause, severability of interest
Where you meet it
- Group policies covering a parent and its subsidiaries as named insureds.
- Joint venture arrangements where the venture and its participants are all insured.
- Policies extended to include a principal, where the principal and the contractor are both insured parties.
Worked example
A group holds one liability policy naming a holding company and two trading subsidiaries. One subsidiary damages property belonging to another while performing work for it.
With a cross liability clause, the injured subsidiary’s claim against the other is treated as a claim under a separate policy and can be covered. Without the clause, the claim is between two insureds under one contract and would ordinarily fall away.
What goes wrong with it
- The clause does not multiply the limit. Every insured still shares the one limit of indemnity, however many separate notional policies the clause creates.
- It is sometimes called severability of interest, and the two names do not always mean exactly the same thing in a given wording.
- Exclusions still apply to each insured. Property owned by any insured is usually excluded from liability cover, and the clause does not change that.
- Adding a new subsidiary to a group does not automatically add it to the policy. The clause governs how insureds relate to each other; which entities are insured at all is a separate question answered by the schedule.
- Where a joint venture ends, the clause does not keep the former participants insured against each other for the future. Cover for past work runs on the terms of the policy that was in force at the time.
Covers this clause appears in
- Public liability insurance — Cover for legal liability to third parties for personal injury or property damage arising from business activities.
Related clauses
Guides that use this
Sources
On any specific policy, the wording and the schedule govern — they are the primary source for what a clause means there. The references below are general guidance to check against, cited at the publisher level.
- Moneysmart (ASIC) — General guidance on business insurance from the regulator’s consumer site. A starting point, not a definition of this clause.