Today at Bootcamp: Noting an Interested Party on your insurance policy, what to look out for?
As a broker, it is extremely important to ensure that our clients understand the need to correctly note interested parties but it also equally important that they understand what this means in relation to their insurance policy.
Andrew Grogan, an Account Manager at Milne Alexander runs through the importance of noting an Interested Party, Named Insured and Principals Liability on insurance policies and the impacts and challenges with each.
There are many contracts that require an Interested Party to be noted on the policy, but what does this mean and how does it affect the insurance policy?
The most common ways we are asked to note third parties are;
Including them as a “Named Insured”
Including them as an “Interested Party”
Or just noting their interests
What way we include them will affect how the insured exposes their insurance policy to claims outside of their control.
What is a Named Insured?
A Named Insured is;
1. Usually a party to the insurance contract but not the contracting party or insured.
2. Will receive and give insurance notices, such as expiry/renewal and cancellation notices
3. Can make a claim and enforce the policy directly against the insurer but the conduct of the contracting party/insured can affect whether a claim is paid. Eg; non-disclosure, misrepresentation.
An example of a Named Insured is the description of the insured on the policy schedule including “subcontractors and consultants engaged by the insured”
What is an Interested Party?
An Interested Party is;
1. Is not a party to the insurance contract
2. Does not receive any insurance notices
3. And most importantly, CAN make a claim and enforce the policy against the insurer if they are;
Listed or named as a beneficiary in the policy
Referred to in the policy as someone to whom the benefit of the policy extends, but the conduct of the
contracting party/insured can affect whether a claim is paid. Eg; non-disclosure, misrepresentation.
An example of an Interested Party is a mortgagee is listed specifically on the policy along with a clause/endorsement explaining the basis of their rights and entitlements to make a claim.
What is noting a Third Party’s Interests?
What this means is we are just notifying the insurer that there is someone else that has an insurable interest in the policy. This is commonly used where a contract requires property to be insured against loss or damage and the principal has an insurable interest in the property.
An example is in a Hire Purchase contract, the financier requires the borrower to insure the equipment against loss or damage until the final instalment is paid. The financier would usually ask to have their interest “noted on the policy”.
This sounds very similar to an Interested Party, but the major difference is they are only protected when;
1. They will suffer a financial loss if the property is damaged
2. The insurer does not notify the insured before the cover was placed that it will not insure their interest
3. Following a claim, the policy sum insured is not exhausted in paying the insured’s claim
4. The conduct of the contracting party/insured does not affect whether a claim is paid. Eg; non-disclosure, misrepresentation.
It has become common for principals to ask for Principal’s Liability cover to be included in a contractor’s third party insurance, such as Public Liability. This is another type of Interested Party.
Principal’s Liability usually provides cover for the principal’s legal liability arising from the work conducted by the contractor under a contract. It does not provide cover for liability for liability that arises independently of the contractors work.
In many Public Liability policies, Principal’s Liability is offered as an extension or an automatic inclusion. The Steadfast Public Products Liability automatically includes this but it has been found that many of the Lloyds policies in the market must be requested to include.
What are the challenges when noting a Named Insured?
It can be difficult to have an insurer agreed to include a Named Insured on the policy, this is because the insurer will need;
1. Additional underwriting information about the Named Insured
2. They may also want additional premium due to the new risk they are exposed to.
Many insurers will not agree to add the Named Insured as they believe they are exposed to too much unknown risk.
If the insurer has agreed to and the Insured comfortable with adding another party as Named Insured, it is important to review the conditions and exclusions of the policy. Sometimes the contract will specify what they require to be amended but the most common clauses needing review are;
Insured vs Insured Exclusion; this exclusion may need to be removed to allow one party to recover against another for legal liability.
Subrogation Clauses; a waiver of subrogation may be necessary. This means the insurer agrees not to exercise its rights to pursue another insured for their proportion of the liability.
Non-Imputation Clause; this clause may need to be included so that the knowledge of one insured is imputed to any other insured.
Cross Liability Clause; this clause obliges the insurer to separately protect each insured so the policy operates as if a separate contract of insurance had been issued to each party.
Severability Clause; this clause prevents the insurer from raising non-disclosure or misrepresentation by one party as a basis to decline the claim of another party.
Sums Insured and Reinstatements; It is important to ensure there is adequate insurance in place as these can be quickly exhausted where more than one insured can make claims.
The overall impact of allowing a Named Insured on the policy is that you allow the principal to make a direct claim against the insurer for anything which is within the terms of the policy. A Named Insured should only be considered when the policy is for a specific job, not a policy covering the whole business.
What are the challenges of adding an Interested Party?
Adding an Interested Party is the easier and better way for our clients to meet their contractual needs. The major difficulty is noting the Interested Party correctly on the policy, as often we are given shortened or abbreviated names and these usually would not be acceptable.
Sometimes you will need to review the clauses of the policy, in particular the Severability, Cross Liability, Non-Imputation and Insured vs Insured clauses.
The principal will be limited to claim under the policy to incidents involving the Insured, their work and products. This means the policy can only be used where our Insured is legally liable as per the terms of the policy.
What are the challenges of Noting an Interest?
It is important to clarify exactly what is to be noted;
1. Is it “rights and interested” or “rights and liabilities”?
2. Is it an insurable interest?
3. Is it a contract?
The easiest way to clarify this is to ask the other party what their intention is when being noted. Is it;
1. To allow them to claim on the policy?
2. Or to just notify the insurer of their insurable interest?
If we are insuring for material damage, it would usually be necessary to have the “respective rights and interests” noted on the policy. Such as a mortgagee or financier protecting their interest in a property.
If we are insuring Public Liability, it would usually be necessary to note the “principal’s rights and liabilities”
The better approach is to have the principal names as an Interested Party.
This not always possible and is at the discretion of the insurer. It is possible where the insurer has agreed to and confirmed in writing that they will accept contractual liabilities in relation to that specific contract. The insurer will cover these liabilities as per the terms and conditions of the policy, there is potentially still uninsured exposures in the contract.
NEED HELP NOTING AN INTERESTED PARTY ON YOUR INSURANCE?
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Milne Alexander, dynamic and forward thinking insurance brokers passionate about insurance so you don’t have to be, together we grow.