Tipsheet 2 Insurance Clauses – Pitfalls for brokers

1 Tipsheet 2. Insurance Clauses . Pitfalls for brokers Broker Version Updated September 2010. Some common Pitfalls experienced when These types of reviews should be reviewing Insurance Clauses in client's undertaken by a lawyer who specialises in contracts. contract liabilities and Insurance working with a broker. How can brokers help? brokers are often asked to review the What can brokers safely' tell Insurance Clauses in a client's contract to clients? confirm that the Insurance the broker has If asked, brokers can: placed meets the contract requirements. Examples: Advise whether the Insurance described in the contract is available on reasonable The Insurance must cover all liability to pay commercial terms in the current market. damages or compensation arising out of any Confirm Insurance is in place by getting injury or death to a person or any loss of or a certificate of currency from the insurer.

2 Damage to (including resulting loss of use) any property howsoever caused. Provide details of the sums insured/limits of liability, excesses and reinstatements . The Insurance must cover each insured for by checking the policy schedule/coverage their respective rights and interests covering all summary. liabilities, whether arising under statute or Advise whether appropriate endorsements common law, in relation to the death of, or have been obtained - eg insured vs injury to, employees or any person deemed to insured endorsements, interested parties be an employee. noted by checking the policy schedule and any other endorsements to the policy. Such a review usually requires consideration Advise whether the insurer meets a credit of: rating requirement in a contract by checking the current credit rating for the how the insuring clause in the policy insurer through a credit rating agency like operates; Standard and Poors, Best or whether exclusions and other conditions Moody's.

3 Apply based on case law and legal Advise whether the business description principles of policy interpretation; for the insured is adequate for the whether the policy meets the contract services/goods to be provided under the requirements; contract by reviewing the policy schedule whether the Insurance required under the and checking with the insured that no contract is available in the Insurance changes have been made to their market. business activities. For further assistance, contact the Disclaimer About Gold Seal Steadfast Contractual Liability This Tip Sheet has been prepared for Steadfast Group Gold Seal is a leading provider of Helpline: Limited and its Shareholders. It contains general compliance, risk management, legal, information about contractual liability issues.

4 It is not human resources, training and 02 8353 6607 tailored to the individual circumstances of any recipient education services to Insurance and is not a substitute for obtaining specific advice intermediaries. about the contractual liability issues that arise in your Gold Seal 2010 business. If it is borderline' or requires some Depending on the extent of the services or interpretation of how the policy works or products to be provided, your client may be what the contract means, contact the required to hold a broad range of policies Steadfast Contractual Liability helpline or including: refer your client to a lawyer who can advise on the Insurance issues. Public Liability;. Professional Indemnity; and On what areas should brokers not Workers Compensation / Employer's advise?

5 Liability. brokers should not advise on whether a policy is adequate to meet the But some contracts (particularly for large requirements of an Insurance clause in a government, commercial, mining or industrial contract - unless you have particular projects) may also require: expertise in this area or you are working with a lawyer to provide this advice to your Contract/Construction Works client. Products Liability Employment Practices Liability The indemnity and Insurance Clauses are obvious areas that impact on whether the Management Liability policy will respond to claims made under the Director's & Officer's Insurance contract. What is less obvious is that there are Contractor's Plant usually other legal obligations scattered throughout a contract that impact on your Goods in Transit client's policy.

6 Motor Vehicle /Third Party Liability brokers should refrain from: Often the other party to the contract treats the Giving an opinion' to a third party as to policies as if they have been purchased whether an insurer is reputable' or exclusively for the contract! solvent;. Reviewing the indemnity' and hold This is almost never the case because the harmless' Clauses this is the territory of client usually purchases the policy to cover all lawyers; of their contracts and business activities. This Reviewing an entire contract to see is why it is often better to make changes to the whether the policy will respond - this Insurance requirements in the contract than to requires a detailed legal analysis of all of change the terms of the Insurance policy. the contract terms.

7 Agreeing to have the contract noted on What are some of the common the policy unless the terms of the Pitfalls ' of Insurance Clauses ? endorsement operate effectively to immobilise' the contractual liability Let's look at some common requirements in exclusion more on this below. Insurance Clauses : Examples: What types of Insurance are usually required? The policy must be placed with a reputable insurer.'. Before we look at the common Pitfalls , let's review some of the types of Insurance that your client might be required to hold. What is meant by reputable'? Who decides whether one insurer is reputable For further assistance, contact the Disclaimer About Gold Seal Steadfast Contractual Liability This Tip Sheet has been prepared for Steadfast Group Gold Seal is a leading provider of Helpline: Limited and its Shareholders.

8 It contains general compliance, risk management, legal, information about contractual liability issues. It is not human resources, training and 02 8353 6607 tailored to the individual circumstances of any recipient education services to Insurance and is not a substitute for obtaining specific advice intermediaries. about the contractual liability issues that arise in your Gold Seal 2010 business. and another is not? It is usually better to otherwise the contractual liability exclusion have the identity of the insurer approved may still apply. by the other contracting party or to set more objective criteria ie Insurance The public liability policy must provide must be placed with an Australian- cover with a limit of liability of $20m for regulated insurer with a credit rating of A+ any one occurrence.

9 Or more.. Often a contract will require your client to The policy must name the other hold a certain amount of Insurance for contracting party as an interested party example, $20m. or an insured. Public liability Insurance may have sublimits for certain claims (eg property This is often required for public liability damage where the property is in the Insurance , and sometimes other classes. temporary care or custody of the insured For risk management reasons, it may not or pollution claims). be a good idea for the client to name the other party on their policy. The other party For example, the Steadfast General and can claim under the policy and exhaust the Products Liability Policy contains a limit of liability on a policy that is used for $250,000 sublimit for liability claims for the client's entire business (ie one that is damage to property in the insured's care, not arranged exclusively for the contract).

10 Custody or control. For professional indemnity Insurance , a This means the policy doesn't provide more pressing concern is an insured vs $20m of cover for any occurrence. We insured' exclusion. This type of exclusion recommend that your clients have this prevents one insured from suing or making noted in the contract, so that they will not a recovery against another insured. It can be in breach of contract. result in your client being uninsured' for disputes with the other party if they are a The policy must require the insurer to named insured. This is one of the reasons notify the other party if the policy has why most PI insurers will not name the lapsed, is varied or has been cancelled. other contracting party as an insured under your client's policy. This can be difficult because the insurer will not agree to give notifications to a As an interested party also has the right person who is not the contracting party for to claim on the policy, PI insurers will the policy.