Does Your Commercial Insurance Policy Have a Warranty Clause?

If you’ve purchased commercial insurance, it’s essential that you fully understand your insurance documents. Otherwise, it can lead to devastating consequences. 

Here is an example: as a business owner, you probably strive to pay your insurance premium on time. However, if you overlook an important detail (such as the insurance warranty clause) and you fail to comply with its conditions, it could void your coverage.

This is why it’s important to fully understand the insurance warranty clause in your policy. By doing so, you will be able to comply with these conditions and reap the full benefits of your insurance plan. 

In this guide, we will discuss:

1. Insurance warranty clauses;
2. Examples of insurance warranty clauses; and
3. Give you tips to fully understanding your insurance policy.

Let’s begin!

What Is an Insurance Warranty Clause? 

In the world of commercial insurance, understanding the details of your insurance plan is one of the key steps to making sure that your policy will be able to protect you effectively. One of the vital details to look out for is the insurance warranty clause in your policy.

Insurance warranty clauses are essentially promises or guarantees given by the insured (or the policyholder) to the insurer to do or refrain from doing something. Failure to comply with this warranty clause will mean that the coverage is void. This is what’s known as a promissory warranty.”

Some policies may also have an insurance warranty clause regarding the truth behind the facts given to the insurer. When misinformation or misrepresentation is discovered, it can also void the coverage. This is called “affirmative warranty."

What Is the Purpose of an Insurance Warranty Clause? 

Warranty clauses in insurance policies are there to make sure that insured businesses are not putting themselves in unnecessary danger when it comes to damage, theft, loss, and the like. In addition, insurance warranty clauses serve to limit the risk of the insurer so that they can continue to serve all their clients (the insured) well.  

Examples of Insurance Warranty Clauses

Insurance warranty clauses can take on many forms. Here are a few examples: 

1. Alarm Systems

This example involves a promise to maintain an active and functioning alarm system for a property or location. Therefore, this clause is commonly present in insurance plans that provide coverage for property. This includes:

• A rental property (landlord insurance);
• A commercial property (commercial property insurance); or
• Equipment (construction equipment insurance).

In the event that theft occurs and the alarm systems are proven to be defective (thereby breaching this warranty clause), this could mean that the loss from the theft will not be covered. 

2. Storage Specifications

This type of warranty clause is a set of guarantees that certain storage specifications will be met. The details can vary greatly per policy.  

As an example, let’s say that for an electronics store, the insurance warranty clause states that electronic devices cannot be stored lower than 20 centimetres above the ground. Then, a flood happens and damages most of the equipment in the store. 

If the store did not comply with the storage specifications set in the clause, it’s likely that they will not be covered for the damage sustained. 

3. Sub-Contractors

This type of insurance warranty clause may require the insured business to verify that a subcontractor has insurance first before hiring them. If the insured company does not comply with this, then it could mean that their coverage is void.   

What if the Breached Insurance Warranty Is Not Related to the Type of Loss?

If the breached insurance warranty clause does not directly relate to the damage or loss sustained, it could still mean that the coverage will be void. This may vary significantly from one insurance provider to another—but this definitely happens in some cases. 

For instance, let’s say that a commercial property insurance policy has a warranty clause regarding maintaining an active security system. Then, the insured business suffers a flood. Even though the security system (or a lack thereof) does not directly correlate to the flood, failure to comply with the warranty clause can still void coverage.

Based on the example above, it’s important to remember that although the warranty clause and the damage sustained are not directly related, they are connected to the same insurance policy (i.e. commercial property insurance).

Therefore, there’s a possibility that the damage won’t be covered if it is discovered that the insured business failed to comply with the stated promissory warranty. 

What Other Insurance Details Should I Be Aware Of? 

As an insurance holder, you should be cognizant of other critical details in your insurance plan, such as the following: 

• Covered perils – a covered hazard resulting in loss or damage
• Exclusions – prohibition of coverage for certain types of damage, property, and acts
• Deductibles – the amount paid by the insured for a claim before insurance coverage takes over
• Coverage limit – the maximum amount of money that the insurer will payout for a claim

With the help of a trusted insurance broker, you can get organized insurance documents that clearly present insurance warranty clauses—as well as the above key information mentioned here.

Get Customized and Fully Transparent Business Insurance

When searching for the best kind of commercial insurance for your business, there are two key elements to look for: customized options and full transparency. Here at KASE Insurance, we make these our top priority. 

KASE Insurance is an award-winning, Toronto-based insurance brokerage firm. We specialize in creating customized commercial insurance plans for businesses of all kinds. On top of offering great deals and exemplary coverage, we are fully transparent and proactive in communicating coverage limits, exclusions, deductibles, and insurance warranty clauses within a policy. Clients can rest assured that we provide continued assistance for all their future insurance needs.

Take the next step towards hassle-free insurance with us. Contact us today or get started with a quick quote!