Insurance 101

What's the difference between jurisdictional and geographical limits?

Whatever your business, client contracts are your first line of defence against potential legal claims and disputes. Not only do they protect the rights of you and your customers, giving you both certainty and peace of mind, they also set out which laws apply if anything goes wrong. So, while it may not be the most exciting part of your job, it's vital to get it right. Here's some of the key contract jargon to be familiar with and how it relates to your insurance policy:

Jurisdiction

Client contracts should contain a jurisdiction clause, which determines where any associated legal claims would be heard. This clause is important because it allows you to avoid certain countries' courts if you wish, and without it, you could face an expensive and time-consuming dispute over where any claims should be handled. It also avoids the risk of multiple claims happening in different countries at the same time.

The jurisdiction can also be either "exclusive" or "non-exclusive". Generally speaking, "exclusive" means that only the specified courts will be able to hear disputes and "non-exclusive" means the specified courts have jurisdiction to hear disputes but the parties aren't prevented from litigating in other courts instead (or as well).

Governing law

Likewise, it's sensible to specify which set of laws govern your contracts. Governing law is the law that will be applied in claims relating to that contract. The governing law and jurisdiction don't have to be the same; therefore, your contract should specify both the governing law and jurisdiction.

As with jurisdiction, if you don't specify which law governs your contract, you could face an unnecessary dispute about which set of laws should be used to interpret it.

What does "jurisdictional limit" mean?

You probably won't be surprised to hear that legal costs and damages across the pond can be much higher than in the UK. As a result, insurance companies often avoid exposure to legal claims in North America by limiting where their cover applies. This also benefits customers without North American exposure by enabling them to pay lower premiums.

So, if the jurisdictional limit of your insurance policy is "worldwide excluding USA and Canada", it means the policy won't cover claims brought in courts in the USA or Canada, or claims relating to contracts governed by their laws. Likewise, if the jurisdictional limit of your policy is "United Kingdom", then the policy will only cover claims brought in courts in the UK and under contracts governed by its laws.

What does "geographical limit" mean?

Most insurance policies also have a separate "geographical limit" (sometimes called "territorial limit") which can be used to exclude claims relating to work carried out in certain locations. For example, if the geographical limit of your policy is "European Union", it means the policy won't cover work you do for clients outside the EU.

A geographical limit can also be used to broaden your cover without increasing exposure to certain jurisdictions. So, for example, if the jurisdictional limit of your policy is "worldwide excluding USA and Canada", but the geographical limit is "worldwide", it generally means that you're covered for work you do for clients anywhere in the world - you're just not covered for claims which are brought in courts in the USA or Canada, or under contracts governed by the laws of the USA or Canada.

To give you an example, imagine a Software as a Service (SaaS) business in the UK, with subscribers worldwide (including USA and Canada), but with terms and conditions governed by the laws of England and Wales, and exclusive jurisdiction in England. In this case, the SaaS business may be satisfied that USA and Canadian jurisdictional limit isn't required, provided that the geographical limit is worldwide.

Another example could be an advertising agency in the UK with a client headquartered in New York. If their contract is governed by the laws of England and Wales, and exclusive jurisdiction in England, then the agency may be comfortable with the jurisdictional limit excluding the USA, so long as it is included in the geographical limit. Alternatively, If the contract was governed by the laws or jurisdiction of the State of New York, then the agency would need the jurisdictional limit to include the USA.

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