Taking security over insurance policies
Taking security over insurance policies

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Taking security over insurance policies
  • Nature of insurance policies
  • In context—taking security over insurance policies
  • Relevant types of security used for insurance policies
  • Identifying the insurance policies
  • Key terms of the assignment document
  • Representations
  • Undertakings
  • Perfecting security over insurance policies and priority
  • Protecting a lender's interest in an insurance policy
  • More...

Rights under insurance policies are a type of contractual right.

Lenders can take security over insurance policies by an assignment by way of security. There are also additional protections that a lender can utilise in relation to insurances, such as having its interest noted on a policy of insurance or being co-insured. These additional protections take different forms and have different benefits for a lender.

This Practice Note will focus on issues relevant to taking security over rights under insurance policies. For information on how to take security over contractual rights in general, see Practice Note: Taking security over contractual rights.

Nature of insurance policies

Rights under insurance policies are not tangible assets. They are a type of contractual right. A contractual right is what is known as a chose in action or thing in action, ie something that is recoverable by legal action as opposed to something that is physically possessed.

Contracts of insurance are a special kind of contract. They are contracts of the utmost good faith, which means that the insured party is under a duty of fair presentation, which, for non-consumer insureds, includes a requirement to:

  1. make a (clear and accessible) disclosure of every material circumstance which the insured knows or ought to know

  2. disclose sufficient information to put a prudent insurer on notice that it needs to make further enquiries, and

  3. ensure that any

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