16th August 2010
The Definitions section of the policy is a key part of the contract and can make the difference between cover and no cover. Definitions are frequently overlooked by you until there is a dispute under the policy – by which time it is too late. The Definitions section assigns the meaning to certain words and phrases used in the policy document. The Definitions vary as between Insurers and can be a major influence on what is actually covered. This is particularly relevant to:-
- Professional business/activities;
- Who and what is “The Insured”;
- The application of the excess;
- the Limit of indemnity.
The expression “Regulated Business” would appear, at first sight, to be a standard expression needing no explanation, but, consider the following definition:-
“REGULATED BUSINESS” means all activities regulated under the Financial Services and Markets Act 2000 as set out in Section 22 of the Financial Services and Markets Act 2000 and regulations made thereunder.
With this definition if “Regulated Business” is contained in an exclusion then an insurance broker’s entire business is excluded from the policy. What would be required is that insurance mediation is excluded from the definition; for example as shown below.
“REGULATED BUSINESS” means all activities regulated under the Financial Services and Markets Act 2000 as set out in Section 22 of the Financial Services and Markets Act 2000 and regulations made thereunder but shall not include insurance mediation as defined in the glossary to the Financial Services Authority Handbook.
Some policies define the term “Circumstance” such that it becomes synonymous with the definition of “Claim”. This could be highly disadvantageous to you as the requirements for the notification of a claim are based on the fact that a claim is an unambiguous demand, whereas the circumstance is something that may or may not develop into a claim at a future date.
Words that are defined in a policy are often identifiable by means of different capitalisation or the use of bold or italic script.
POINTS to CONSIDER
How do the Definitions affect your understanding of the risks insured?
Have any words had their usual meanings changed?
Have any technical terms or “terms of art” had their meanings changed?
Do any of the words or expressions in the endorsement come within Definitions or do they appear to conflict with any Definitions ?
Definitions form the backbone of the policy. They will be interpreted strictly. It is important to consider the Definitions in relation to your expectations of cover as well as their demands and needs.
Insurance brokers would be expected by the courts to be more able to understand their insurance policy than any other class of insurance buyer for the obvious reason that they are dealing in the commodity. However, not every insurance broker deals in professional indemnity insurance and the expressions, customs and practice in this area of business are unfamiliar to many.
Definitions of similar things can vary substantially as between insurers. A comparison of several policies will clearly demonstrate this fact. Some will be more suited to your purpose than others. It is important to take note of these and to seek advice from specialists in the field. BIBA’s Accredited Brokers are available for consultation.