Non-vitiation clause
A clause that keeps cover in force for one insured, often a lender, even if another insured under the same policy committed a breach that would defeat cover for it.
When a single policy covers several interests, for example the operator of an asset and the banks financing it, one party's breach can threaten cover for all: a misrepresentation by the operator, the breach of a safety condition or a deliberate act on its part would allow the insurer to deny cover, and the lenders, whose rights derive from the same policy, would lose their protection with it. The non-vitiation clause separates the insureds: it provides that one party's breach does not affect the rights of the others, who remain covered as if they had bought a separate policy. It is demanded almost systematically in project, infrastructure and asset finance, because lenders do not control the operator's behavior and cannot accept losing the value of their security through a breach they did not commit. For the insurer, the clause transfers a behavioral risk it can no longer sanction against everyone; policies therefore often provide a right of recourse against the insured at fault after the lenders have been paid.
Textbook case: a solar plant 80 percent financed by a bank syndicate is destroyed by fire. The insurer discovers that the operator had disabled a detection system in breach of a policy condition. Thanks to the non-vitiation clause, it indemnifies the banks up to their interest, then turns against the operator at fault.
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