Posted in News on 25 Nov 2019

The lead up to the financial close of a project, either at the start of the construction phase, or the purchase of an operational asset, is a complex process with many factors that can cause delays. However, with the right level of organisation and good communication with lenders, insurance does not need to be one of them. Typically, project financiers will look to include certain policy enhancements, known as ‘Lenders Clauses’ to ensure that the insurances surrounding the project comply with their loan agreements. Lenders clauses can be, if not handled correctly, a roadblock to the finalisation of an insurance placement. However, a clear understanding of what these clauses are designed to do, and how they apply to the project, will mean a faster, more straightforward process when seeking lender sign-off

In this article, Andrew Crichton details the specifics of the main lenders clauses and their relevance, in order to help bring some clarity to what lenders are looking for. 

Decoding Lenders Clauses

Understanding what lenders are trying to achieve with their clauses is important for brokers and original assureds alike. For those in the Power sector, a sound understanding of the application of lenders clauses is important given the significance of these clauses in the event of a claim. 

Requirement: Finance Parties being included as a Named Insured
Decoder: The finance parties will require that they are added to the list of additional insureds in the policy wording.

: This will give the lender(s) the ability to exercise more control over the policy, for example where a borrower defaults, lenders are able to take control of the premium payment and/or proceeds of claims. A second and vital part of being named as an insured is that the lender is given protection against one of the other insureds voiding the policy, often by way of a non-vitiating clause.

Requirement: Non-Vitiation

Decoder: A non-vitiation clause is designed to protect insured parties against one of the other insured parties voiding the policy by way of a Vitiating act, for example fraud, non-disclosure or not meeting a warranty. 

Reason: This means that the lenders are protected against another parties’ error or omission stopping a claim being paid. This is a hot issue as it is the very basis of what insurers rely on to ensure that an insured carries a reasonable level of prudence in their operations, so insurers will only agree to a non-vitiation where Subrogation rights are retained against the ‘guilty’ party.

Requirement: Waiver of Subrogation

Decoder: A general principal of insurance is that where an insurer admits liability and pays a claim, that insurer acquires all rights and interests of the insured to subrogate against any parties who may have contributed to the loss, but in this clause the insurers are waiving that right. 

Reason: In most cases all parties to a project will have waived all such rights of subrogation against each other, either by way of a Hold Harmless agreement, cap on liability or by agreeing to include those parties as Named Insureds under the contract. In order for these contractual agreements to be upheld through into the insurance policy, insurers must agree to waive their assumed rights of subrogation. The waiver of subrogation does not however apply where a party makes a vitiating act. Since the insurers have agreed to a non-vitiating clause, they have lost the ability to deny a claim by a vitiating act, but by the waiver not applying to vitiating acts, they are subsequently able to subrogate against that party, without affecting the right of the other named insureds.


These Lenders Clauses are dealing with fundamental rights normally reserved by insurers, so it is understandable that underwriters will review and scrutinise these clauses carefully. The key to a smooth process of approval is to limit uncertainty by using market-wide approved clauses. In this case, one solution is to use the London Engineering Group Multiple Insureds Clause (MIC). This clause deals concisely with the big issues of Non-Vitiation and Waiver of Subrogation, is accepted market-wide and, most importantly, has also been accepted and approved by the majority of lenders’ advisors. In our experience, when a set of lenders clauses has the MIC at the core, insurers are typically much happier to agree them and the rest of the clauses contained in them. 

It is therefore vital that discussions on the drafting of these Lenders Clauses are held in the early stages of a project, as in many cases other project agreements will refer to these clauses and what we all want to avoid is redrafting of loan agreements late in the day, and so negotiations with underwriters can take place early in the quoting process.

Alesco’s Power team are experienced in the financial close process and aware that our greatest value is delivering a lender compliant insurance solution within the required deadlines as to ensure that the project is suitably safeguarded against possible – and completely avoidable - delays.


Andrew Crichton | Partner

T +44 (0)20 72 04 62 53 | E.

About Alesco
Alesco is a specialist insurance and risk management business located in the heart of the City of London. Founded in 2008 by a team of experienced professionals, we provide a wide range of risk-management services and insurance solutions which are fundamental for protecting organisations. We work closely with underwriters in the London markets, in key global insurance centres, and with local broking partners in 150 countries.



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