Where a project involves lenders, insurance is a key area of interest for lenders and should be organized in conjunction with them – or with them in mind. Correcting insurances to meet lenders’ requirements can be complex and time-consuming.

Lenders’ interests are twofold: -

  • To ensure that they are satisfied with the scope if the proposed insurance cover – the risks covered, the exclusions, the amount of cover and the deductibles
  • To ensure that their interests in the insurances are adequately protected

Lenders may therefore require pollution insurance and delay in start-up or business interruption insurance.

Main items Lenders will be expecting to be covered: -

Identity of insured

Lenders may prefer the project company rather than one of the participants to take out the insurances as the lenders have more influence over the decisions and acts of the project company, it is the party probably best placed to obtain insurance for the whole of the project period and having one single source may help to avoid gaps in coverage. However, it may sometimes to cheaper to have a project participant provide cover if it has good standing.

Long-term cover

Lenders will want assurances that the insurance cover will continue for the term of the loans – even though insurance can only be taken out on an annual basis. Lenders may require some direct contractual commitment from a member of a consortium, for example, to continue to renew the insurances. Brokers are usually required to enter an undertaking to notify lenders of any proposed cancellation of cover amendments to a policy.

Lenders as Co-insureds

In order to perfect insurance security interests and to have control over how insurance proceeds are spent, lenders may seek to become co-insureds on the policies (and become direct beneficiaries of separate and independent policies). Being co-insured rather than joint insured is important as non-disclosure by one co-insured will not entitle the insurers to avoid (vitiate) the policy against the other insured

For Further Information Contact:

Debasish Mukherjee


+91-22-6655 8888

+91-22-6655 8868