In an Active Insurance Market - Some Points you Used to Know but Can't Quite Remember!

There is nervousness in the insurance market and evidence is emerging

that key reinsurers are applying a blanket exclusion of perils from

terrorism. This sensitivity has brought the insurance provisions to the

fore in lease negotiations. Tenants are alert to the issues and the

potential uninsured risks. Both they and other parties with an insurable

interest in the premises are scrutinising landlords policies and looking

carefully at the cover they provide.

In this market, a review of first principles and common terminology is

warranted.

The basic position

A straightforward insurance policy of a commercial building will

generally be taken out by the landlord in its own name. In most cases

there will be a general noting of tenants' interests. Often, there will be

no specific reference to the interests of a tenant's mortgagee. In

reality, this may represent only a snap shot of the insurance position on

the property. There may be a number of other insurable risks which require

full protection under the policy: a freeholder, a landlord, a tenant, a

mortgagee, an administrator, an executor, a contracting buyer may all have

insurable risks. It is the manner in which these interests may be recorded

on the policy that can cause argument and unnecessary delay.

The terminology

The landlord's interest will appear on the schedule as the principal

insured.

Third party interests require closer scrutiny. Several terms and

phrases are referred to in legal documents and in insurance documentation.

These are joint insured, dual insured, composite insured and

parallel insured, on the one hand, and interest noted or

general interest on the other. The impact of each of these is set

out in the tables.

The umbrella term generally used to describe policies in which more

than one entity has an interest is "co-insurance".

Any policy insuring more than one entity where those entities do not

have identical interests is a composite policy, in other words a number of

separate contracts of insurance between each composite insured and the

insurer in respect of their separate interests. Any policy where the

landlord, tenant and mortgagee are named insureds will almost certainly be

a composite policy.

Joint insurance describes a policy in which more than one entity

has an identical interest. There are in practice very few such situations

- a husband and wife insuring a property as joint tenants for example.

Note that any breach of the policy, fraud or other wrongdoing by one

insured will affect the rights of the other (innocent) joint insured.

The expressions "dual insured" and "parallel insured" are

not terms of art - a Court would review the policy to decide whether on

the facts the relevant parties were joint or composite insureds.

In order to determine who are insured parties, it is necessary to check

the definition of "insured" in the policy/policy schedules, or in any

other memoranda or endorsements. An entity may be an insured by virtue of

being a member of a class...