Conversion of subjectivity

In general terms, subjectivities in insurance refer to specific conditions/risk reduction requirements to be met
by the applicant/insured or the policyholder. Depending on the purpose, conditions/risk reduction
requirements are generally classified as a corrective, detective, corrective and preventive.

Underwriters support in the area of loss prevention and control by imposing conditions/risk reduction
requirements and providing recommendations to improve the risks, following the conclusion of a survey.

Subjectivities are conditions of the contract and must be expressed as such, to avoid unnecessary ambiguity.
By merely stating the subjectivity in the quotation/ schedule or policy wording does not provide sufficient
clarity for a reasonable interpretation of its implications. Subjectivities should clearly indicate the actions to be
carried out, the timescale and the consequences of failing to meet them.

To avoid ambiguity subjectivities shall stipulate the following:

 The actions to be carried out,

 By whom and to what standard,
 The timescale, and
 The consequences.

1. The actions to be carried out:

2. Timing of subjectivity: the contract has been agreed with an obligation to carry out a survey but no mention
is made of when the survey must be carried out during the policy period. I would expect that the insurer would
need to have the survey carried out relatively soon after inception to have any value for risk management or to
afford the insurer an opportunity to change terms as appropriate to the survey results. However, timing is not
mentioned and the insured can theoretically carry out the survey on the expiry date, or not at all considering
that the impact of noncompliance is not mentioned. Timing would increase contract certainty; if the survey
was to be carried by a deadline which proceeded the loss then the insurer may have a stronger case to deny
the claim.

3. Implications of non-compliance: a subjectivity should state the ramifications for the insured if the survey is
not completed. Now the contract does not give certainty on how the insurer will respond; will they change the
excess/deductibles, will they issue notice of cancellation, charge more premium, introduce a sublimit, apply
exclusion? Any of these examples would be possible if stated clearly as part of the subjectivity but currently it
is not clear how the insured would be affected or whether the insurer has the right to change terms at all.

4. Implications of inadequate survey results: even if the above points 1–3 are included, the subjectivity does
not state what will happen if the survey results are not satisfactory to the insurer, as in this example. The
insurer should have the ability to renegotiate the contract if the survey reveals a poorer risk than imagined by
the insurer at inception – a material change in risk. However, by not indicating what will happen in the event
of a poor survey, the insurer might unwittingly agree that coverage is fine to continue whatever the survey
results demonstrate

(b) As the subjectivity is not contract certain, the insurer might have difficulty in rejecting the claim because
the survey is not satisfactory. Firstly, if the insurer drafted the ambiguous condition then the subjectivity will
be construed against them, as the drafter. This is the contra proferentem rule (CII study text, M21
Commercial insurance contract wording, 2018) of contract construction. Secondly, there is enough
uncertainty created by the condition that the insurer could expect a lengthy settlement process, possibly
involving costly legal defence fees. It could easily be a good defence for the insured to rely on the survey
being completed despite being unsatisfactory, given that the essence of the condition is ‘subject to survey’.

9.1 Reasonable Precautions

You shall:
a) take all reasonable precautions to prevent occurrences which may give rise to loss
destruction or damage;
b) take all reasonable steps to comply with statutory requirements obligations and
regulations imposed by any authority;
c) take immediate steps to make good or remedy any defect or danger which
becomes apparent or take such additional precautions as circumstances may
require.

9.2 Subjectivity
a) If the Policy is issued with subjectivity it will clearly state in the Schedule if the cover
provided by the Policy is subject to You:
i) providing the Insurer with any additional information requested by the required date;
ii) completing any actions agreed between You and the Insurer by the required dates; or
iii) allowing the Insurer to complete any actions agreed between You and the Insurer.

b) If required by the Insurer You must allow access to the Premises and the Business to
carry out surveys within 60 days of the inception or renewal date, unless agreed
otherwise in writing.
If cover under this Policy is subject to You completing risk improvements and complying
with the risk improvements for the currency of the Policy then the risk improvements
identified must be completed within the individual timescales specified and complied
with for the currency of the Policy.
Following the above actions the Insurers reserve the right to:
a) modify the premium;
b) change the terms and conditions of the Policy;
c) require You to make alterations to the Premises insured by required dates;
d) cancel the Policy in accordance with General Condition 9.3;
e) leave the Policy terms, conditions and premium unaltered.
You will be advised of the Insurers decision and any required actions and dates. The
effective date of any changes will apply unless and until the Insurers agree otherwise in
writing.
If You disagree with the Insurers decision You must make Your comments in writing and
the Insurers will attempt to negotiate a resolution with You. If this is unsuccessful You
have the right to cancel the Policy and, subject to no claims, a proportionate part of the
premium will be refunded to You.
The above conditions do not affect the Insurers right to void the Policy in accordance with
General Condition 9.11 if information material to their acceptance of Your Proposal is
discovered.
A Guide to Reinsurance Law - ISBN 9781315850481 Published July 24, 2013 by Informa Law from
Routledge - By Robert Merkin. – pag. 439