In this regular feature we take a look at common clauses found in energy insurance that are often not well understood and try to look at what their intentions are, and what they cover or exclude. In this article we look at non-vitiation clauses.
A ‘non-vitiation’ clause in an insurance policy ensures that coverage granted to one insured party (whether the named insured, a co-Insured or an additional Insured) is not prejudiced by a vitiating act (an act which destroys or impairs the legal validity of a contract) by another party insured under the policy.
These clauses are typically required by lenders who require to be named as additional insureds in policies covering assets they have effected loans against, however they also apply to any situation where the actions or inaction’s of one insured would, in absence of such clause, impact the recovery of another insured who was not party to the vitiating action or inactions.
There are various different clauses that are used in different sectors of the insurance market that have the same effect, such as:
- Breach of warranty clauses
- Innocent insured clauses.
All of which specifically state that the actions or inactions of one insured (which could include fraud, misrepresentation, non-disclosure or breach of warranty or condition) shall not prejudice the right to indemnity of any other insured party who has not committed such a vitiating act.
In absence of a specific ‘non-vitiation’ clause (or similar clause with a different title) similar text may be added to an ‘errors and omissions’ clause (where the innocent error or omission by the Insured does not prejudice their recovery) so that such error or omission by any insured shall prejudice the right to coverage of another insured who is not privy to such error or omission.
Another way of achieving the same outcome is a ‘separation of insureds’ clause or a ‘severability of insureds’ clause, which states that the policy applies as if each insured were the only insured. Therefore automatically negating insurers ability to claim that the actions or inactions or ‘any insured’ impacts ‘all insureds’.