I finally get a chance to continue my series on the topic on the naming of insureds on general insurance policies.
To recap so far I have addressed property and business interruption policies and in this post I look to cover casualty policies. This will leave one area to address and that is the issue of innocent insured’s where another named insured causes the policy to be deny the claim and they suffer an otherwise insured loss.
Today I start by explaining what I mean by casualty classes. When I started my career insurance was generally grouped into 5 departments, fire, accident, marine, workers compensation and life. Due to its size in some companies motor was treated as a department of its own.
The accident department covered a wide range of areas including machinery breakdown, motor, livestock and liability.
More recently the approach taken by the United States market of grouping all the third party liability covers as opposed to the property coverages has become main stream.
Some polices such as home and motor have a property and casualty component.
For the sake of this post I am referring to public liability, products liability, management liability, professional indemnity, directors and officers and all the other products commonly referred to as ‘Professional lines’ under the broad heading of Casualty.
Most policies in this category (the major exception being Professional Indemnity which I will address shortly) contain a cross liability clause which means that all the insured parties are separate legal entities and can claim against each other.
Other effects of the cross liability clause are:
- While an insurer can rescind policy to one entity on the grounds of, say, misrepresentation, it cannot rescind the cover against the others unless the same misrepresentation was made by the other entity(ies) or was party to the misrepresentation made by the first Insured.
- The policy relating to one entity may be affected by an exclusion that has no effect on another named Insured
- Payment by the insurer to one named Insured does not mean the Insurer is still not liable to another named Insured, even if the first has signed a discharge
- If an indemnity is offered to one named Insured, this does not mean the insurer has to necessarily indemnify another named Insured
Having stated this general principle underlying the Cross Liabilities Clause, it is important to understand that the principle can always be varied by an Insurer with the variety of policy wordings on offer, including by endorsement to the Schedule.
An example in this category may be related to including a responsible parties clause directed
- misrepresentation; or
by the Named Insured arranging the insurance and giving instructions on behalf of all of the Insured:
It is essential with such grouping of interests that the occupations of all of the businesses are properly identified in the application for insurance.
All this means is that each named Insured stands on its own on its own merits. This is seen as a good thing and means that one policy can be arranged for a group of related companies but as with the property policies it is important to have each entity named. However, there is a downside in that all the policies share the one sum insured/limit of liability which in the case of say a product liability policy is that the limit applies to all claims during the period of insurance. A claim by one entity erodes the coverage for the balance of the insured entity.
One policy type that does not have such a clause and in fact takes a completely different approach is Professional Indemnity. Not only does this type of policy not have a Cross Liabilities clause but rather it typically contains a related entities, sometimes referred to as the Associates exclusion which prevents a related entity to a named insured from claiming under the policy. This is an important exclusion in a Professional Indemnity policy that brokers need to explain to their clients as few clients I have spoken with about the issue are aware of.
I end this post with a reminder to brokers in particular that PolicyComparison.com is a quick and easy to use resource to highlight the exclusions to an Insured the exclusions that apply to the policies that have been arranged on their behalf. Having said this, more and more I am seeing that additional endorsements restricting coverage are included to the base wording. Such endorsements need to be read and understood and again their effect explained to the client. Quite often the exclusions have the name of the occupation of the Insured but rather than provide additional coverage for that occupation many insurers take away all the coverage that an Insured in that occupation is likely to need. Failure to communicate the exclusion can result in a professional indemnity claim against the broker.