Also known as: contractual liability exclusion · contract exclusion · assumed liability exclusion · Contract X exclusion
An exclusion that removes coverage for extra liability you took on by signing a contract, beyond what the law would have made you responsible for on its own.
The contractual liability exclusion removes coverage for liability you assumed purely by agreeing to it in a contract, when the law would not have held you responsible without that agreement. Most policies include an important carveback: they preserve coverage for liability you would have had anyway in the absence of the contract, and for a defined list of "insured contracts" such as leases of premises and the typical business indemnity agreement. In practice that means a routine hold harmless clause in a vendor agreement is often still covered, while an unusually broad or one-sided indemnity you sign can fall outside the policy. On the management liability side, the same idea appears in D&O as the "Contract X" exclusion, which can be narrowed to a "for" wording so it bars only claims for breach of contract itself and preserves coverage for related management or securities allegations. Founders should have a broker read exactly how broad this exclusion is before signing large customer or subcontract agreements.
A contractual liability exclusion is policy language that removes coverage for liability you assumed under a contract that goes beyond the liability the law would have imposed on you anyway. It targets promises such as broad indemnity or hold harmless clauses, where you agree to be responsible for another party's losses. Most policies pair the exclusion with carvebacks that preserve coverage for liability you would have had without the contract and for defined "insured contracts," so it is not a blanket denial of every contract-related claim.
The insured contract carveback is an exception built into most general liability policies that puts coverage back for certain common agreements, such as leases of premises, easements, and the typical business contract in which you assume another party's tort liability for bodily injury or property damage. It is why an ordinary hold harmless clause in a vendor or subcontract agreement is usually still covered. Because the definition of "insured contract" has limits, an unusually broad indemnity can still fall outside it, which is why the wording is worth checking before you sign.
In D&O, the contractual liability exclusion is often called "Contract X." Broad versions bar any claim based upon or arising out of a contract, which can sweep in management or securities allegations that only touch a contract dispute. A narrower "for" wording bars only claims that are actually for breach of contract, preserving coverage for the related management-liability allegations. Pushing toward the "for" wording is a common ask when placing a startup's D&O program.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.