The Insuring Clause describes what is covered by the policy. It may also set out some measure ofqualification of the scope of cover. This could be described as the heart of the policy and, in modern PI policies, will very often be a description of broad and comprehensive cover. This broad cover is, later in the policy wording qualified and restricted by exclusions, terms and conditions.
Insuring Clauses are sometimes called operative clauses or simply labelled as “cover”. More importantly they may also include sub clauses that are not truly part of the Insuring Clause at all. For example, an Insuring clause that states that the policy will not cover something; this is not helpful because exclusions are better kept under one part of the policy for ease of reference.
Where the insurance policy includes two or more distinct types of cover the Insuring Clause may be divided into two or more Insuring Clauses each dealing specifically with each aspect of cover.
Insuring clause 1 legal liability,
Insuring clause 2 fraud/fidelity risk and
Insuring clause 3 loss of documents
Insuring clause 4 Defamation/ Infringement of copyright
Where policies are structured in this way it is usual to reflect the structure in the policy schedule so that the respective sums insured and applicable excesses are clearly set out in respect of each Insuring Clause.
Claim and Loss
The words ‘claim’ and ‘loss’ can have different meanings. Both will be used in respect of liability cover to describe a claim against the Insured and a claim by the Insured against the policy loss suffered by the claimant. The word Claim with a capital C will usually mean claim against the Insured but this is not universally so and therefore it is important to find out what is meant by claim / Claim according to the policy definition.
The word “Loss” will also be used to describe the loss suffered by the Insured in respect of fraud/fidelity and property damage/loss of documents cover. It is important to ensure that these phrases are correctly expressed consistently, throughout the policy wording because they do sometimes get used inappropriately, by accident and this can lead to misunderstandings and disagreements in the event of a claim. It is frequently found that endorsements to a policy use words that are inconsistent with the original meaning in the policy.
Errors and inconsistencies in construction
Often it is not until a policy comes under examination in the course of litigation that errors in drafting and construction are first discovered. It is only too easy for insurers and brokers to completely overlook fundamental errors in construction because of over familiarity or simply relying upon the fact that the policy wording was at one time presumably drafted by a lawyer and therefore can be relied upon.
Errors in construction in the Insuring Clauses can create a fundamental flaw in the policy and have been known to allow a claim that would otherwise have been covered to be rejected on the grounds that the policy says what it says even though it was not the intention. There can be occasions when the “Contra Proferentem” rule may not apply so there is every reason to check the wording of the policy to ensure there are no obvious errors, but this is usually the argument of last resort.
Claims Made / Losses Occurring
Professional indemnity policies are typically written on a “claims made” basis. This simply means that the insurance policy must be in force at the time the claim is made against you for which there is an indemnity under the policy. Other types of liability policy are underwritten on a losses occurring basis which means that provided there was a policy in force at the time the insured peril occurred then cover will be in force (subject of course to the other terms and conditions).
Insuring Clause – Example 1
“To indemnify the Insured against any Claim(s) or Loss(es) first made against or incurred by the Insured during the Period of Insurance as shown in the Schedule in respect of any civil liability whatsoever or whensoever arising (including liability for Claimants’ costs) incurred in connection with the conduct and performance of Businesscarried on by, or on behalf of, the Insured.”
This clause has three requirements:
- The claim must have been firstmade against you or the loss incurred by you during the Policy Period.
The claim or loss must relate to a civil liability, and
- The claim or loss must have arisen in connection with the “conduct and performance of Businesscarried on by, or on behalf of, you as the Insured.”
When all three requirements are present the policy will respond subject only to the other terms and conditions.
Insuring Clause – Example 2
Except as provided by the Fraud/Dishonesty Cover below, all cover under this policy is afforded solely with respect to Claims first made against an Insured during the Policy Period and reported to the Insurer as required by this policy.
The Insurer will pay on behalf of any Insuredall Damagesresulting from any Claim for any act, error or omission which gives rise to a civil liability of the Insured
The important difference in this clause is that the the claim / loss must not only be made / incurred during the policy period but aslo reported to insurer during the policy period. With this type of Insuring Clause if a Claim is made in one policy period but reported in another then there is no cover.
The clause goes on to specify…. Damages arising out of any act error or omission which gives rise to a civil liability. This implies that if there was no act error or omission then there is no cover whereas example 1 only requires there to be any civil liability.
This is a good example of how different phrasing, apparently saying the same thing, can imply a different meaning. The argument must be,logically, that the words “act error or omission”, qualifying the term civil liability, are intended to convey some restriction.
Insuring Clause – Example 3
The Underwriters agree, subject to the terms, conditions, limitations and exclusions contained herein
1. CIVIL LIABILITY
to indemnify the Assured against all sums which the Assured shall become legally liable to pay as damages (including claimants’ costs and expenses) as a result of any claim or claims first made against the Assured and notified to the Underwriters during the policy period by reason of any civil liability incurred by the Assured in the performance of the Business.
This clause is different again. There is a requirement in this clause to notify the claim in the same policy period. It indemnifies the Assured for legal liability to pay damages as a result of civil liability incurred in the performance of the Business (which will be defined in the Definitions and will probably relate back to the description provided in the proposal form).
POINTS to CONSIDER
Several important points emerge from the three example clauses above:
- Be sure that you understand the scope of the cover as expressed in the Insuring Clause.
- Remember that the Burden of Proof is on you to show that the claim comes within an Insuring Clause. This extends to provisions elsewhere in the policy where they must be complied with in order to satisfy the Clause. This applies, for example to the reporting and notification provisions in Examples 2 and 3, above.
- Check that you can accept and comply with any obligations or restrictions that the clause mposes.
The breadth of cover may vary considerably by use of different expressions such as
“Civil liability” or “Acts, Errors or Omissions giving rise to a civil liability” or “Negligent Acts Errors or Omissions”, more restricted still, be sure to understand any other terms incorporated in the Insuring the clause. If in doubt seek advice from your Broker or a specialist lawyer.
The maxim that provides for ambiguities to be construed against the person responsible for drafting them.