Clause

What is a clause?

In a legal contract (including an insurance policy), a clause is a section that deals with a specific subject. Each clause lays out points of understanding between the parties to the agreement.

Clauses aren’t of a specific length or format. Some clauses are a single paragraph, while others span many pages. It depends on how much detail that section of the contract needs.

Within each clause are details about who needs to do what, and what happens if they don’t do it.

Some types of clauses reoccur across many contracts. Common clauses include:

• Limitation Period. The statute of limitations sets a time limit for the parties to the contract to start legal action if another party doesn’t uphold its end of the deal.
• Arbitration. An arbitration clause describes when and how the parties may solve disagreements through arbitration rather than through the courts.
• Severability. A severability clause explains that the terms of a contract are independent of one another—they’re still in force even if other parts of the contract are invalidated.
• Indemnification. In an indemnification clause, one party agrees to cover losses suffered by another party. This is also the main function of an insurance policy.
• Force Majeure. French for “major force,” the force majeure clause sets out conditions under which the contract’s parties no longer have to abide by its terms due to circumstances beyond the parties’ control (like natural disasters or war).

While these are all common clauses, they aren’t necessarily identical from contract to contract.

There’s no standard way to designate different clauses within a contract, but there are some common forms you’ll see. Contracts often use a numerical system to separate clauses. Often, clauses are further divided into subclauses, which have separate numbering systems. Often, subclauses use letters or roman numerals to separate them from the numbering system of the main clauses.

For example, you might see a contract that’s structured like this:

In theory, this makes a contract easy to read. But, if you’re not used to reading contracts, you may find it more confusing than helpful—especially in a complex contract with sub-sub-sub-sub-subclauses.

Sometimes, a subclause is simply a very long sentence split into multiple line items to make it easier to read. When a clause or subclause is only part of a longer sentence, it’s known as a subordinate clause:

In the example above, items a, i, ii, and iii are all subclauses; i, ii, and iii are also subordinate clauses.

Clauses in insurance

An insurance policy is a contract. Like other contracts, they are made up of clauses. Within a home insurance policy, you’ll find sections that deal with insured perils, coverage limits, exclusions, deductibles, limitations, and other topics.

Every insurance provider writes their policies a little differently. But, there are some clauses in Canadian insurance policies that the law requires.

For example, if you have a mortgage, your homeowner’s insurance policy will include some version of the Standard Mortgage Clause. The main purpose of this clause is to ensure the mortgage lender is covered even if the homeowner does something that nullifies their own coverage—like intentionally damaging the house.

Other common home insurance policy clauses include the Statutory Conditions—also required by law. These describe what happens in cases of misrepresentation, how the policy can be cancelled, and the policyholder’s responsibilities following a loss (amongst other things).

The important points

• In legal contracts (including insurance policies), clauses are sections and subsections within the contract that deal with specific topics.
• Clauses describe the expectations of each party to the policy.
• There is no set format for clauses; they can appear different depending on who wrote the contract.

Looking for another insurance definition? Look it up in The Insurance Glossary, home to dozens of easy-to-follow definitions for the most common insurance terms. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.