In commercial negotiations, a principal will often insist on being named as an insured on the insurance policy of the contractor. Negotiation will then focus on whether the principal should be a 'named insured', included as an 'interested beneficiary' or simply 'noted' on the policy. The contractor will usually prefer to have the principal's interest merely 'noted' on its policy. What does this mean for the principal and how is it different to being named as an insured or a beneficiary?
Named Insured: Being a named insured means that you are a party to the insurance contract, can give and receive notices and make a claim and enforce the policy directly against the insurer.
Third party beneficiary: The key differences between being named an insured or being listed as an interested party is that the interested party is not a party to the insurance contract and cannot receive and give notices under the policy. But this does not impact on the interested party's right to recover under the policy. The right of a person specified as an interested party to claim and enforce the policy (as a third party beneficiary) is enshrined in both common law and statute.
The Insurance Contracts Act 1984 (Cth) (ICA) provides a person who is not a party to the insurance contract but is specified as a third party beneficiary, with a right of recovery in accordance with the insurance contract.
The High Court in the 1988 case of Trident Insurance v McNiece Bros held that in certain circumstances noncontracting parties who were named as beneficiaries in policies were entitled to be indemnified in respect of losses covered by the policy. While the common law is now only relevant to contracts of insurance which are not regulated by the ICA, it remains a guide for the interpretation of the ICA.
Noted: A person whose interests are 'noted' on a policy is not necessarily entitled to claim under that policy. The notation serves to put the insurer on notice that someone else has an insurable interest. The precise wording and surrounding circumstances become relevant in determining whether the insurance provides a benefit to a party merely "noted" on the policy.
Knowing the differences when negotiating is essential to ensure adequate protection of your interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.