Understanding key insurance terms like “Principal’s Indemnity” and “Interested Party” is important for business owners, with a lease contract or bank financing for the premises.
Understanding these concepts will help you to ensure your key risks are managed and that the right type and amount of insurance is in place.
Principal’s Indemnity
- Definition: a principal is the person or company that engages or employs your business. Many principals include a clause or requirement in their contracts or work orders that you or your insurer will be responsible (indemnify them) for all losses and damage and also pay their legal costs if there is an accident when doing the work.
- Insurance policies do not automatically extend to indemnify Principals. So, you need to speak to your insurance adviser and provide details of the work to be undertaken and why the principal has required that they be indemnified by you and your insurance.
- Principals do not have any right to discuss the insurance policy cover or make any changes with the insurance company, only the person that purchases the insurance policy (Named Insured) has this right. Principals can check with the insurer to see if a policy is current, they can notify a claim to the insurer, if not already reported and may also some limited involvement in the claim settlement. They do not receive any claim settlement money, as they are not the Named Insured.
- Implications for Clients: Insurers need to be advised of any requirements to cover the principal, if they agree an additional premium is likely to be payable as the insurer is agreeing to extend cover to your principal, increasing the risk.
Interested Party
- Definition: An Interested Party is a person or company that has a connection to what is being insured. For example, the owner or landlord of a building usually requires to be noted on the property insurance, as they are interested in building repairs or claims being made. They are not an Insured under an Insurance policy, so have limited rights under the law.
- Insurance policies don’t usually note Interested Parties, although some policies may include landlords and banks/ financiers automatically. It’s always best if you speak to your insurance adviser and discuss any interested parties that are required to be listed on your insurance.
- Interested Parties do not have any right to discuss the insurance policy cover or make any changes to the insurance with the insurance company. Only the person who purchases the insurance policy (Named Insured) has this right. Interested parties can notify a claim the insurer if not already reported and may also have some limited involvement in the claim settlement or can check to see if the policy is current. They do not receive any claim settlement money, as they are not the Named Insured.
- Implications for Clients: Insurers should be notified of any Interested Parties, this is usually done at no additional premium, as the insurer is not extending cover. The rights of an Interested Party are limited. They can confirm insurance is in place/ renewed and will only be contracted in the event of a major claim.
Both the Principal’s Indemnity and the Interested Party can be noted on insurance policies in accordance with a contract or agreement. The insurer needs to be advised of the reasons and may charge an additional premium for extending the cover to a principal.
Understanding these concepts can help to ensure you have the right type and amount of insurance cover in place. Speak with your insurance adviser for further advice.
Contact Lewis Insurance Services on 07 3217 9015 or send us an email by clicking here.
This article was published by our AFSL Licensee, Insurance Advisernet Australia P/L, www.insuranceadviser.net
Disclaimer:
This information and any accompanying material does not consider your personal circumstances as it is of a general nature only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances and considering the Product Disclosure Statement