Occasionally we get a client that attempts to bind the insurer to a contract that the insured firm has signed in hopes that the insurer will be bound to that contract. This is where the Contractual Liability Concept comes into play. Basically, an insured cannot bind an insurer to the terms of a 3rd party contract.
Contractual Liability is a common exclusion found in almost all insurance policies, you will find it called and described in many different ways. In general, contractual liability is where the insured signed a contract that obligates the insured to pay damages to a 3rd party. The insurer is not bound by the contract that the insured has with a 3rd party. The insurer is only bound by the terms of the insurance policy.
In other words, if the insurance policy covers the matter in question, then there is coverage under the policy. If the insurance policy does not cover the matter in question then it does not matter what the 3rd party contract states. The insurer is not bound by the 3rd party contract.
The current AXIS Insurance Lawyers Professional Liability Insurance policy states in the policy conditions about attempting changes to the policy by the insured:
6. Changes. Notice to any agent or knowledge possessed by any agent or other person acting on behalf of us shall not effect a waiver or a change in any part of this policy or estop us from asserting any right under the terms of this policy, nor shall the terms of this policy be waived or changed, except by written endorsement issued to form a part of this policy.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080