Blog Question: Non-Vitiation Clause
Can you please explain what a Non Vitiation clause is all about?
Steve [surname and email provided]
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.