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Term: Distribution Clause

21 May 2015

DEFINITION of ‘Distribution Clause’
An insurance policy provision which determines how the coverage limit is to be applied to items covered under the policy. Distribution clauses apply to policies that cover multiple assets, such as property insurance, including assets that are spread out over multiple locations.

Blanket clauses are most commonly associated with insurance that covers the contents of a building rather than the building itself. This is because the value of the building is unlikely to change much over the term of the policy, whereas the value of what’s inside may change based on what the insured party fills it with. This is especially the case when the policy covers the contents of multiple buildings, as the value of the goods in one building are unlikely to shift from covered property to covered property.

Distribution clauses are used when two or more separate risks are covered under the same policy. These risks are unlikely to be involved in one singular incident. For example, two properties covered under a policy are unlikely to be in danger of the same fire. This type of clause is often used in tandem with a co-insurance clause, as this diminishes the need to holding specific coverage amounts for one property compared to another. This makes it easier on the policyholder since it removes the need to determine what specific amount of coverage is required for one property at a given time.

Policyholders will want to ensure that the amount of coverage in a policy with a distribution clause covers the total value of all items. The location of contents across covered properties is not as important as ensuring that the value of the items is properly accounted for.

A policy that does not contain a blanket clause when covering multiple properties may hit its coverage maximum. This may occur when damage caused to one property uses the entirety of the coverage limit.

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