DEFINITION of 'Cooperation Clause'

An insurance contract clause that requires the policyholder to assist the insurance company in the event that a claim is filed against the policy. A cooperation clause allows the insurance company to obtain more information about the nature of the circumstances behind the claim, since the insured party is more likely to have detailed information about what happened.

BREAKING DOWN 'Cooperation Clause'

Insurance companies may underwrite policies for thousands of policyholders across a wide geographic area. The insurers are unlikely to know the day-to-day activities of the insured, and are even less likely to know the events that transpired before another party made a claim against the insured. This is the primary reason why insurance policies contain provisions compelling the insured to provide information about what happened if an accident or other event occurs.

Assisting an insurance company in the case of a claim does not mean that the insured has to appear in court. Depending on the policy and the amount of claim, the insured may wind up only speaking with the insurer over the phone in order to present his or her side of the events. The insurance policy language may specify the level of cooperation that the insured must provide, such as assistance in an investigation. The insured is expected to provide accurate information and to desist from lying.

Cooperation clauses are often considered essential or material components of an insurance policy contract. The ultimate reasoning for its importance is that the insurer wants to know as much information as possible in order to avoid paying for a claim that it should not have to pay for. If the insured decides not to cooperate, or if the courts determine that the insured is withholding information and is not acting in good faith, the insurance company may determine that the insured is in breach of contract and therefore, forfeit his/her coverage.

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