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2012 The Chartered Insurance Institute 2011

P21

Commercial insurance contract wording

Purpose

At the end of this unit, candidates should be able to demonstrate an understanding of: the purpose, scope and use of commercial contract wording in the London Market;

the issues to consider when drafting or agreeing a contract wording;

the importance of greater contract certainty to the London Market.

Assumed knowledgeAssumed knowledge may not appear in detail within the learning outcomes but forms part of the syllabusand may be examined. It is assumed that the candidate already has the knowledge gained from a study ofgeneral insurance principles, coverage, practice and regulation and the law of contract.

Summary of learning outcomes Understand the regulatory regime and the initiatives within the market to achieve contract clarity and

certainty.

Understand the legal issues affecting insurance and reinsurance contracts.

Understand the scope, coverage and limits of insurance contract wording.

Understand the main conditions applied to commercial contract wording.

Understand the implications of contract wordings as applied to different types of reinsurance.

Important notes The syllabus is examined on English law and practice unless otherwise stated.

The April session will test the legal position as of 31 August of the preceding year.

The October session will test the legal position as of 28 February of the same year.

Candidates should refer to the CII update website www.cii.co.uk/updatesfor the latest information onchanges to law and practice and when they will be examined.

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4. The main conditions applied tocommercial contract wordings

4.1 Classification of terms;

4.2 Loss / claim notification;

4.3 Claims handling / adjustment;

4.4 Insureds rights and duties;

4.5 Disputes;

4.6 Cancellation;

4.7 Consistency of language used / definitions;

4.8 Conditions precedent.

5. The implications of contract wordingsas applied to different types ofreinsurance

5.1 Reinsurance wording and slip policies;

5.2 Types of reinsurance requiring different types ofwording proportional, non-proportional, excessof loss, quota share;

5.3 Proportional Treaty Wording Clauses Period ofAgreement and Termination Clause; Premium,Commission and Profit Commission Clauses;Submission of Accounts Clause; Claims NotificationClauses;

5.4 Non-Proportional Treaty Wording Clauses Reinsuring Clause; Cover Limit and Priority Clause;Ultimate Net Loss Clause; Net Retained LineClause; Follow the Settlements; Claims ControlClause; Claims Cooperation Clause; CurrencyFluctuation Clause; Jurisdiction Clause;

5.5 Event definitions.

1. The Regulatory Regime and marketinitiatives

1.1 Regulation Financial Services Authority andLloyds.

1.2 London Market Principles and other marketinitiatives.

1.3 Common problems arising from contract wording.

1.4 The aim of achieving greater contract clarity andcertainty.

1.5 Market wording and clauses.

1.6 Market Reform Contract.

1.7 Role of market associations.

2. The legal issues affecting insurancecontracts

2.1 Legal relationship between the parties insured,insurers, reinsurers, brokers, claimants;

2.2 Slips, contract wording and the factual matrix;2.3 The rules of construction and interpretation of

contracts;

2.4 Law and jurisdiction;

2.5 Duties of the insurer and broker drafting,checking, signing;

2.6 Leading underwriters agreements;

2.7 Underwriting agents and delegated authorities.

3. The scope, coverage and limits ofinsurance contract wordings

3.1 Features of the Schedule Insured, Period, Limits,Premium, Territorial Scope;

3.2 Incorporation of proposal form and information;

3.3 Scope of coverage and basis of attachment;

3.4 Exclusions exclusions applicable to individualsections of the wording, exclusions applicable towhole wording, buy-backs to exclusions;

3.5 Defining the Sum Insured or Limit of indemnity claim, event, occurrence, cause;

3.6 Excess or deductible and their interpretation;

3.7 Endorsements and Addenda;

3.8 Special requirements for certain types of business.

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Reference materials Colinvaux & Merkins Insurance contract law. Robert M

Merkin. London: Sweet & Maxwell. Looseleaf, updated.

Dictionary of insurance. C Bennett. 2nd ed. London:Pearson Education, 2004. Also available online atwww.knowledge.cii.co.uk/resource/dictionary-insurance(CII/Personal Finance Society members only).

Insurance law: text and materials. Ray Hodgin. 2nd ed.London: Cavendish, 2002. Also available online via www.knowledge.cii.co.uk

The international hull clauses: analysis of the 2002,1995 and 1983 hull clauses: against the background ofthe Marine Insurance Act 1906. Stephen B Goodacre. 1sted. London: Witherby, 2003.

The law of insurance contracts. Malcolm A Clarke. 6th ed.London: Informa, 2009.

The law of reinsurance in England and Bermuda. P TONeill, J W Woloniecki. 3rd ed. London: Sweet andMaxwell, 2010. MacGillivray on insurance law: relating toall risks other than marine. 11th ed. London: Sweet andMaxwell, 2008.

Marine insurance clauses. N Geoffrey Hudson and TimMadge. London: Informa Professional, 2005.

Reference book of marine insurance clauses. London:Witherby. Annual.

Reinsurance practice and the law. Reinsurance Divisionof Barlow Lyde and Gilbert. London: Lloyds of LondonPress. Looseleaf, updated.

Periodicals The Journal. London: CII. Six issues a year. Also available

online (CII/Personal Finance Society members only)at www.knowledge.cii.co.uk/category/resource-type/-journal.

WebsitesCII Knowledge Services www.knowledge.cii.co.uk

Financial Services Authority www.fsa.gov.uk

Market reform www.marketreform.co.uk

Examination guidesGuides are produced for each sitting of written answerexaminations. These include the exam questions,examiners comments on candidates performance and keypoints for inclusion in answers. You are strongly advised tostudy guides for the last two sittings. Please visit

www.cii.co.ukto buy online or contact CII CustomerService for further information on 020 8989 8464. Olderexamination guides are available (for members only) atwww.knowledge.cii.co.uk/category/resource-type/exam-guides.

Exam technique/study skillsThere are many modestly priced guides available inbookshops. You should choose one which suits yourrequirements.

Reading listThe following list provides details of various publicationswhich may assist with your studies. Periodicals andpublications listed will be of value in ensuring candidateskeep up to date with developments and in providing awider coverage of syllabus topics. Any reference materialscited are authoritative, detailed works which should beused selectively as and when required.

Note: The examination will test the syllabus alone. Thereading list is provided for guidance only and is not in itselfthe subject of the examination.

CII/Personal Finance Society members can borrow someof the additional study materials below from KnowledgeServices. CII study texts can be consulted from within thelibrary. For further information on the lending service,please go to www.knowledge.cii.co.uk.

Commercial insurance contract wording. London: CII.Study text P21.

Birds Modern insurance law. John Birds. 8th ed.London: Sweet & Maxwell, 2010.

Contract law. Anne Ruff. 5th ed. London: Sweet &Maxwell, 2008.

A guide to reinsurance law. Robert Merkin, ed. London:Informa, 2007.

The law of reinsurance. Colin Edelman ... [et al]. Oxford:Oxford University Press, 2005.

London market reform. James Willison. London: CIIKnowledge Services. Updated as necessary. Availableonline via www.knowledge.cii.co.uk(CII/PersonalFinance Society members only).

An outline of the law of contract. Sir Guenter Treitel. 6thed. Oxford: Oxford University Press, 2004.

Recent developments in insurance contract law. RobertMerkin, updated by Sam James 2010 . London: CII

Knowledge Services. Updated as necessary. Availableonline via www.knowledge.cii.co.uk(CII/Personal Finance Society members only).

Recent developments in reinsurance law. Robert Merkin,updated by Sam James 2010 . London: CII KnowledgeServices. Updated as necessary. Available online viawww.knowledge.cii.co.uk(CII/PFS members only).

Reinsurance in practice. 4th ed. Robert Kiln, StephenKiln. London: Witherby, 2001.