As you are aware that,when a Bank / Financial Institutions /NBFs are financing your projects or providing you financial assistance in case of a project, purchase of home, working capital, Term Loans, Loans Against Property, etc. then they include an Insurance Clause in the Contract for the security of property given as security against loans, advances or financial assistance. The Insurance Clause specifically provides that the insurance policies should be issued in the name of bank/financial institution and a "Bank Clause", should be included in the policy documents.
This "Agreed Bank Clause" generally called Special Clause or Special Terms and Conditions under Insurance Policy.
All policies in which a Bank/Financial Institution has an interest shall be issued in the name of Bank/Financial Institution and owner or mortgagor and shall contain a suitable clause to protect their interest.
(Specimen Bank Clause)
If You have mortgaged, hypothecated, or created any security over any Insured Property in favor of a Bank, and the Bank has an interest in the Policy, the name of such Bank will also be shown in the Policy Schedule under the title ‘Agreed Bank Clause’. If You choose to add the name of such Bank at any time during the Policy Period this will be shown as an Endorsement. In this Clause, the word ‘Bank’ includes any financial institution
It is hereby declared and agreed:-
1. That upon any monies becoming payable under this policy the same shall be paid by the Company to the Bank and such part of any monies so paid as may relate to the interests of other parties insured hereunder shall be received by the Bank as Agents for such other parties.
Please Note That: When We pay the amount to the Bank, Our liability under this Policy will be discharged, and will be binding on all of You and all persons named as the insured.
2. That the receipts of the Bank shall be a complete discharge of the Company therefore and shall be binding on all the parties insured hereunder.
Please Note That: The Bank shall mean the first-named Financial Institution/ Bank named in the Policy.
3. That if and whenever any notice shall be required to be given or other communication shall be required to be made by the Company to the insured or any of them in any manner arising under or in connection with this policy such notice or other communication shall be deemed to have been sufficiently given or made if given or made to the Bank.
Please Note That: Any notice or communication We make to the Bank under the provisions of this Policy shall be sufficient notice or communication to You.
4. That any adjustment, settlement, compromise or reference to arbitration in connection with any dispute between the Company and the insured or any of them arising under or in connection with this policy if made by the Bank shall be valid and binding on all parties insured hereunder but not so as to impair rights of the Bank to recover the full amount of any claim it may have on other parties insured hereunder.
Please Note That: Any settlement or compromise that We make with the Bank will be binding on You and all persons named as the insured. However, such settlement or compromise will not affect the rights of the Bank to recover any amount from You or any other person
5. That this insurance so far only as it relates to the interest of the Bank therein shall not cease to attach to any of the insured property by reason of operation of condition (—) of the Policy except where a breach of the condition has been committed by the Bank or its duly authorized agents or servants and this insurance shall not be invalidated by any act or omission on the part of any other party insured hereunder whereby the risk is increased or by anything being done to upon or any building hereby insured or any building in which the goods insured under the policy are stored without the knowledge of the Bank provided always that the Bank shall notify the Company of any change of ownership or alterations or increase of hazards not permitted by this insurance as soon as the same shall come to its knowledge and shall on demand pay to the Company necessary additional premium from the time when such increase of risks first took place and
Please Note That: If You make any change in the use of the Insured Property or Your Premises or sell or transfer the Insured Property, such actions will not prejudice the interest of the Bank under the Policy and this Clause, unless the condition has been broken by the Bank or its employees.
Please Note That:If You commit any act or omission that will increase the risk, the insurance cover will not be invalidated. However, the Bank shall notify Us of any change or ownership, or alterations and increase in risks as soon they become known to the Bank, and shall pay additional premium from the time of such change.
6. It is further agreed that whenever the Company shall pay the Bank any sum in respect of loss or damage under this policy and shall claim that as to the Mortgagor or owner no liability therefore existed, the Company shall become legally subrogated to all the rights of the Bank to the extent of such payments but not so as to impair the right of the Bank to recover the full amount of any claim it may have on such Mortgagor or Owner or any other party or parties insured hereunder or from any securities or funds available.
Please Note That: In cases where the name of any Central Government or State Government owned and / or sponsored Industrial Financing or Rehabilitation Financing Corporations and /or Unit Trust of India or General Insurance Corporation of India and/or its subsidiaries or LIC of India/ any Financial Institution is included in the title of the Fire Policy as mortgagees, the above Agreed Bank Clause may be incorporated in the Policy substituting the name of such institution in place of the word 'Bank' in the said clause.
From above discussion, it is clear that in case of assistance from Banks/Financial Institutions, the Banks/Financial Institutions generally through their Agreement with the borrower puts conditions that the property given as security or stocks in case of Working Capital Loans /advances should be insured with appropriate insurance coverage. The borrower while opting for insurance and on the basis of agreed terms of conditions of Loan Agreement request the Insurance Company to incorporate a Special Clause called " Agreed Bank Clause", in the insurance policy and the name of the Bank/Financial Institutions will be mentioned on the Operative Clause of the Policy. It should be noted that any communication by insurance company related to insurance to the Bank/Financial Institutions will be considered as valid discharge of information and any payment of clam, if any raised under the insurance policy to the Bank/Financial Institutions, will be valid discharge by the Insurance Company. It is duty of insured/borrower to inform insurance company if there is any change in subject matter or terms and conditions of the Loan Agreement with the Bank/Financial Institutions.
It should be noted that in case of loss due to insured perils to the subject matter of insurance, the insurance company is only liable to pay the claim amount to the Bank/Financial Institutions and not liable for other claimants or legal heirs of the insured.
DISCLAIMER: The article produced is only for knowledge and information of readers. The views expressed here are personal views of the author and same will not be taken as professional advice. In case of necessity do consult with insurance advisors.
FCS Deepak Pratap Singh
(Associate Vice President - Secretarial & Compliance (SBI General Insurance Co. Ltd.))
Category Corporate Law Report
