Worldwide: Taking Rights Over Third Party Insurances

Following the publication of our  client alert dated 20th January 2016, we have been asked to consider a series of issues relating to insurance arrangements designed to maximise the benefit of cover for the interests of a third party, such as a lender, an investor/shareholder and a recipient of services. In this client alert, we flag the principal issues that have been raised and seek briefly to address them.

1. How can the recipient of services in the commodities sector enhance its position with respect to insurance cover procured by third party vendors performing services such as storage, warehousing, transportation or custodianship, where such third parties are contractually obliged to procure insurance?

In our view, obtaining additional insured status should provide the best protection; however a recipient of services should request to see the actual policy terms, not just the risk details on the certificate of insurance. This will show all the policy requirements and exclusions which should be checked. For example, the existence of an "insured against insured" exclusion, will prevent recovery in circumstances where the recipient of services might wish to claim against the third party vendor/supplier. For this type of loss, it will be better practice to make sure that the third party vendor/supplier maintains a separate "Errors and Omissions" policy.

Even if it is not possible to analyse the policy terms, it is good practice to obtain a copy of the full policy wording. Otherwise, if there is a problem in the future, any delay in obtaining the policy potentially puts you at risk of not complying with time limits for notification of claims.

In an ideal world, the policy should be a composite policy insuring each insured for its own respective rights and interests as if under a separate policy. This should include a severability clause, providing that if there has been any breach by the third party vendor/supplier, this will not affect the interest of the recipient of services under the policy.

In various countries, a local policy will be a compulsory requirement for anything considered to be a local risk. Consideration should be given as to whether or not any reinsurance policy placed by the local insurer contains a cut through clause. This will enable direct action against the reinsurer by an insured in the event of the insolvency of the insurer. Cut through clauses are effective in the United States and are readily enforced in England under the Contract (Rights of Third Parties) Act 1999.

If the recipient of services also has their own insurance programme in place, the question of double insurance should be considered. The recipient of services should check their own insurance policy and make sure that the insurers are aware of their arrangements with the third party vendor/supplier. The recipients of services should check the 'other insurance' clause in their policy to ensure that it will respond after payment under the third party insurance or failure by that insurance company to pay. It is important to make sure that the recipient of service's own insurance policy does not contain a clause stating that, if the subject matter of the insurance is insured under another insurance policy, then the insurance will cease to have effect or be void. Some policies will just provide for notice of the second insurance to be given to them.

2. What risks, if any, does an investor/shareholder incur by seeking "additional or co- insured" status on the liability policies of its corporate investments? Does the act of requesting to be named as an additional insured on another entity's liability policies create a liability for the shareholder and/or increase exposure to a piercing of the corporate veil?

The short answers to these two questions are "none" and "no" respectively.

However, this is very likely to be tied up with questions of the laws (a) in which the investment entity is incorporated; and (b) of the courts in which the integrity of the investment as a separate legal entity is challenged. Our short answers therefore assume that either English or New York law apply.

Subject to very few exceptions, it is not generally possible as a matter of English law to look behind the separate legal personality of a company and to attribute liabilities arising from its acts/omissions to its shareholders. The exceptions to this rule include where the investment entity is, in fact, acting as the agent of the shareholder. Another instance in which a shareholder may incur liability for the actions of its subsidiaries or investments is where such shareholder has been acting as the shadow director of the company. A shadow director is any person (or entity) with whose instructions the directors of the company are accustomed to act.

Whether or not the person or entity controls and directs the activities of a company to such an extent as to create an agency or for that person to be regarded as a shadow director is a question of fact and degree. The relevant facts would be required to point towards control and direction. It is our view that requesting to be named or in fact being named as an additional insured on an investment's policy does not materially enhance the risk.

The harsh and practical reality is that in cases involving significant exposures (pollution and/or liabilities for environmental damage), claimants may well attempt to direct their focus towards a shareholder and to assert claims, especially where the shareholder is one with deep pockets and a brand to protect. The risk of such claims and attempts cannot itself be avoided. However, it is our view that a risk management strategy involving reliable insurance cover is a sensible strategy for the distribution of the risk of liability on the part of the investor/shareholder. The mere naming as an additional or co-insured on a policy together with the investment entity should not change the risk in any meaningful way. The position would in our view be the same whether or not co- insured status was being sought in addition to the investor's own insurance programme or not.

A best practice that we recommend is that if additional or co-insured status is desired, this amendment to the policy be accomplished via a specific endorsement to the policy. Rather than relying on the more traditional certificate of insurance showing additional insured status, one seeking such status should have their entity identified in an endorsement appended to the policy. This will eliminate any debate or issues as to whether such status exists, or under what circumstances.

3. If a lender's interests are the subject of a loss payee endorsement to the borrowers' first party property insurance, will this be sufficient to ensure that insurance proceeds will fund re-building/continuation of operations after a major incident? Secondly, can the lender be confident that a borrower's conduct will not jeopardise the lender's interest in the insurance?

In short, because a loss payee provision does not provide an insurer with the protection that is provided by additional insured status, a lender cannot be confident of its position.

A well-drafted loss payee clause will give a lender the right to receive insurance proceeds directly from insurers, enabling it to direct the proceeds to ensure repair/continuation of operations. If the policy is governed by English law, this right will be enforceable directly against insurers, so long as the Contract (Rights of Third Parties) Act has not been excluded. However, the lender has no right to make the claim under the policy and will only benefit to the extent that such a claim is held, or agreed, to be recoverable. If the borrower/insured has failed to take steps to maximise the insurance recovery, a loss payee will be unable to correct the position as it has no separate insured status.

The clause ought to ensure that a lender is put on notice, by the insurer, of any impending cancellation or termination of cover resulting from a failing by the borrower. If the breach is non-payment of premium, the lender will have the opportunity to rectify that breach by paying the premium. If it is a breach the lender cannot rectify, it will at least put the lender on notice and provide an opportunity to seek other insurance protection.

The insured risk may well be situated in an overseas jurisdiction which has a requirement that the direct insurance is placed with a local insurer. In almost all circumstances, this local cover will operate as fronting insurance only, and be reinsured into a market such as London. The London reinsurers will often insist on having full control of all claims made against the original insurance. In these circumstances, a lender should work with its local counsel to fully understand the effect of local laws in respect of a loss payee interest and also seek to ensure that an enforceable 'cut-through' clause is endorsed on the reinsurance policy, allowing the lender to 'follow the money' payable by the insurers/reinsurers.

Issues such as these should generally be reviewed by counsel familiar with the jurisdiction(s) in which the risk exists. Many countries, and many states within the United States, have specific requirements for the enforceability of such provisions that need to be complied with.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.