In commercial negotiations, a principal will often insist on
being named as an insured on the insurance policy of the
contractor. Negotiation will then focus on whether the principal
should be a 'named insured', included as an 'interested
beneficiary' or simply 'noted' on the policy. The
contractor will usually prefer to have the principal's interest
merely 'noted' on its policy. What does this mean for the
principal and how is it different to being named as an insured or a
Named Insured: Being a named insured
means that you are a party to the insurance contract, can give and
receive notices and make a claim and enforce the policy directly
against the insurer.
Third party beneficiary: The key
differences between being named an insured or being listed as an
interested party is that the interested party is not a party to the
insurance contract and cannot receive and give notices under the
policy. But this does not impact on the interested party's
right to recover under the policy. The right of a person specified
as an interested party to claim and enforce the policy (as a third
party beneficiary) is enshrined in both common law and statute.
The Insurance Contracts Act 1984 (Cth) (ICA) provides a person
who is not a party to the insurance contract but is specified as a
third party beneficiary, with a right of recovery in accordance
with the insurance contract.
The High Court in the 1988 case of Trident Insurance v
McNiece Bros held that in certain circumstances noncontracting
parties who were named as beneficiaries in policies were entitled
to be indemnified in respect of losses covered by the policy. While
the common law is now only relevant to contracts of insurance which
are not regulated by the ICA, it remains a guide for the
interpretation of the ICA.
Noted: A person whose interests are
'noted' on a policy is not necessarily entitled to claim
under that policy. The notation serves to put the insurer on notice
that someone else has an insurable interest. The precise wording
and surrounding circumstances become relevant in determining
whether the insurance provides a benefit to a party merely
"noted" on the policy.
Knowing the differences when negotiating is essential to ensure
adequate protection of your interests.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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