Blog Question: Non-Vitiation Clause

http://www.dreamstime.com/-image3804639Good afternoon Allan,

Can you please explain what a Non Vitiation clause is all about?

Regards

Steve [surname and email provided]

Hi Steve,

Another name for a Non-Vitiation clause is a Breach of Conditions clause.

In most jurisdictions, a mistake or misrepresentation of a material fact by the Insured entity gives sufficient reason for the insurance company to argue that the insurance policy to be void or under the Australian Insurance Contract Act 1984 (Cth) to reduce a payment by the amount the insurer has been prejudiced.

This could harm the interests of the financiers who in the normal course of their due diligence investigations prior to lending, would not be in a position to identify such a breach.

Including a non-vitiation clause in the insurance policy prevents the insurer from refusing to pay the project company on the basis of defences based on such mistakes or misrepresentations.

In Australia, the Concessions Agreement, which the major finance providers and insurers were signatories in Australia, provided protection to financiers in a similar way but this agreement was let lapse in, from memory the late 1980’s and no longer has relevance.

 

2 responses to “Blog Question: Non-Vitiation Clause”

  1. Matthew Frost says:

    That’s the clearest explanation of non-vitiation I have seen so many thanks. Why, in the interests of simplicity and transparency, can’t such clauses be named in a more simple manner reflecting what they do?

  2. Allan says:

    Thanks Matthew for your kind words. As for the name, I could not agree more. One of my personal crusades, working with Steve Manning and some underwriters is the whole language of insurance. Customers often do not understand what we are saying and are embarrassed to ask for fear of looking silly. We owe it to them to simplify the contracts/coverage.

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