An insuring clause is a part of insurance policies that defines how much risk will be taken on by the insurance company.

Basics of an Insuring Clause

Insurers take on a certain amount of risk when providing an insurance policy, and the risk the company assumes is stipulated in an insuring clause. These clauses are usually included in liability insurance policies and property insurance policies. Their main purpose is dictating how losses will be divided when there are multiple policies in place.

These provisions vary from case to case, and the amount of loss that is apportioned depends on the language of the policy. In some cases, no coverage is provided, and in others, the different insurance companies share the loss evenly. Insuring clauses are used to prevent a profit from a loss that is insured, which is required by the indemnity principle. In simpler terms, these provisions describe the liability of an insurer and outline how much coverage they are required to provide.

Insuring clauses are one of the building blocks of an effective insurance contract. When this provision is inserted into an insurance contract, the insurer is agreeing to fulfill their duties as described in the contract, including:

  • Offering lawsuit defenses
  • Covering risks by paying for any losses that occur
  • Providing any and all services that are outlined

In life insurance policies, for example, the insuring clause will state that the insurer is required to pay a certain amount to the listed beneficiary upon the death of the policyholder.

In these circumstances, the clause would include the name of the insurer, the name of the insured, and the amount that is payable to the beneficiary.

What's Involved in an Insuring Clause Agreement?

There are several issues included in an insuring clause, including a description of legal liability, meaning the amount that the insured will need to pay if a claim is made against the insured. These claims can include:

  • Acts of negligence, including omissions and errors
  • Slander or libel
  • A breach of confidentiality that is unintended
  • Acts that are considered criminal, dishonest, fraudulent, or malicious

Insuring clause agreements also describe the legal expenses and costs that will be covered by the insurer to defend the insured against a claim. These expenses can include damages awarded after the policyholder loses a lawsuit. These clauses also include a provision for loss of documents, whether they have been destroyed, misplaced, or simply cannot be obtained by the insured.

Insuring Clause Exclusion

To protect the insurance company, insuring clauses almost always include exclusions. It's important for the person purchasing the policy to understand these exclusions before entering into the contract. For example, most insuring clauses exclude coverage for issues that were known at the time the contract was agreed upon. There may also be exclusions when the policy holder has another policy that entitles them to indemnity.

Virtually every insuring clause includes an exclusion for acts by the insured that are considered malicious or dishonest. This exclusion can also apply when there is reasonable suspicion that fraud or some other crime has been committed. If the insured is fined or penalized or is required to pay non-compensatory damages after a lawsuit, these issues will also be excluded.

Conditions of an Insuring Cause

For an insurance policy to be valid, there are conditions that must be met that are listed in the insuring clause. For example, when the policyholder intends to file a claim, they are required to immediately notify the insurer. The policyholder must also alert the insurer to any circumstance that could possibly lead to a claim.

When notifying an insurance company of a possible claim, the policyholder must provide the insurer with several important pieces of information:

  • The name of the person that may file the claim
  • Details about the circumstance that may result in the claim
  • An act or omission that the policyholder believes will result in legal liability

Another common condition in an insuring clause is that the insured should not admit responsibility or attempt to settle claims on their own with the express permission of the insurer. Insurers have the right to take over the settlement of a claim on behalf of the policyholder, although this is not required.

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