Insurance contracts play a pivotal role in the risk management strategies of businesses, and engineering firms are no exception. It is critical for business owners to comprehend the nuances of such contracts, particularly the terms ‘Named Insured’ and ‘Interested Party’. This article aims to elucidate these concepts in a clear and comprehensive manner.
To explain using an analogy, think of an insurance contract like an engineering blueprint. The ‘Named Insured’ is like the primary builder who uses the blueprint directly to construct a building (and claim benefits). The ‘Interested Party’ is like a neighbouring property owner. They don’t build from the blueprint, but they care that the structure is sound because it impacts their adjacent property. They have a stake, but no direct hand in the construction.
The Concept of a ‘Named Insured’
The term ‘Named Insured’ refers to an entity explicitly named in the insurance contract who is not the primary contracting party or insured. This entity is endowed with the right to enforce the policy directly against the insurer and lodge claims. However, it is important to note that the ‘Named Insured’s conduct, such as non-disclosure of pertinent information, can influence the admissibility and payout of a claim.
Understanding an ‘Interested Party’
An ‘Interested Party’ signifies an entity with a direct or indirect financial interest in the subject matter of the insurance contract. While not a party to the contract, they may be designated as a third-party beneficiary (TPB), provided they are specifically identified in the contract. As a TPB, they are entitled to recover from the insurer any losses they incur in accordance with the terms of the contract. Again, the conduct of the contracting party can affect the validity and payment of a claim.
For instance, an ‘Interested Party’ in a hire agreement could be a venue owner who may be covered under the event organizer’s public liability insurance for any potential property damage or personal injury incurred during an event.
Insurers and the ‘Interested Party’
In the context of a Professional Indemnity (PI) policy, ‘Interested Parties’ are not noted as they are under a Public Liability policy. If an ‘Interested Party’ is noted under a PI policy, they are considered an ‘Insured’ under the policy. This differentiation is vital due to the ‘Related Parties’ exclusion clause present in all PI policies, which precludes the policy from responding when one insured party lodges a claim against another insured party. Thus, ‘Insured’ parties should provide interested parties with a certificate of their Professional Indemnity policy to validate its existence.
Examples of ‘Interested Parties’
Here are some common scenarios where ‘Interested Parties’ may be involved:
- Landlords: In property insurance policies, landlords may be deemed ‘Interested Parties’, given their financial interest in the payout following property damage.
- Financiers: If the insured property serves as loan collateral, financiers would be considered ‘Interested Parties’, as they have an interest in the insurance payout following property damage or loss.
- Principals: Principals, or business owners, are often ‘Interested Parties’ in professional indemnity or third-party liability covers due to their interest in shielding themselves from third-party lawsuits that might induce financial loss.
Please note that these are generalized scenarios, and the specific cover for each ‘Interested Party’ is determined by the terms and conditions of your insurance policy.
Understanding the intricacies of these terms is essential for effectively navigating insurance contracts and making informed decisions that safeguard your business. If you would like personalised advice regarding your specific circumstances, feel free to reach out to one of the professionals at EngInsure.
EngInsure are here to support you with important PI Insurance advice and solutions to reach the best possible outcome for your business. For assistance, please get in touch with one of our specialists:
T: 1300 854 251
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.