Ensuring Interested Parties Are Noted Correctlyon
It is not uncommon for us to take instruction to add a third party’s interest onto an existing policy. However, any noted interest on an insurance policy needs to be noted correctly to ensure the policy reacts in the intended purpose, in the event of a claim. Therefore, we need to ensure that the policy matches the contract, so we will often ask for details as to what the interested party require.
The below identifies the various options available:
- Note of interest - There isn’t a defined legal position on a note of interest and often, note of interest clauses can either cover very little or can cover extremely wide. Because of this uncertainty, we look to ensure we understand what a person’s interest is before noting it on the policy, to protect our clients, as well as their partner’s interest.
- Joint insured - A Joint insured is a common request, meaning that more than one party is insured on a policy. This is often requested on a Contractors All Risk policy where you have two or more parties interested in the same contract. We can only add a joint insured whereby each insured has a financial interest in the risk, meaning in the event of a material loss, they would make a loss - which the insurance is required to cover. However, a joint insurance policy can have its flaws, as a breach in contract and one insured party could invalidate the policy to all other insured parties. Joint insurance is used, therefore, where there is a mutual interest such as a husband and wife insuring their home.
- Joint and Composite Insured. In this respect neither party can influence the other. If there is a breach of contract by one party, it does not necessarily affect the other party. It is used where the interest may differ. For example, a property owner and the mortgage company.
- First Loss Payee – This means that those noted will get paid first for their loss in the event of a claim, in line with the amounts shown on the schedule. For example, the policy could react that any small claims of up to £25,000 would be paid to the policyholder - anything above that £25,000 would be paid to the funder until they have exhausted their interest. So, in this example, if there was a £1,000,000 loan then they would only be able to claim up to their £1,000,000 investment and for claims which went above this, the difference would be paid to the policyholder.
- Sole Loss Payee – this is very similar to a first loss payee but without the initial cushioned cover. The claims under the threshold would be paid to the first loss payee and not to the policyholder. Insurers are reluctant to offer this and we recommend against it also. The reason being that in the event of a small claim, we want the site to continue. Small losses being paid to a funder and not to those hit with immediate losses.
We at Reich Construction look to work with your solicitors and funders to help translate the above and work with them to create a suitable solution and wording, ensuring that you as our client, remain in the strongest position possible.
Contact us today for more information:
T: 0161 830 7556