'Cooperation' in settling claims - The relationship...
Transcript of 'Cooperation' in settling claims - The relationship...
It‘s clear from our perspective...1 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
"Cooperation" in Settling Claims
The Relationship between
Cedents and Reinsurers
"Cooperation" in Settling Claims "Cooperation" in Settling Claims
The Relationship between The Relationship between
Cedents and ReinsurersCedents and Reinsurers
Dr. Wolfgang Eilers
Chiltington International GmbH, Germany
Dr. Wolfgang Eilers
Chiltington International GmbH, Germany
abcdeConvención Anual de Seguros
of the
Mexican Association of Insurers
(Asociación Mexicana de Instituciones de Seguros - AMIS)
June 9th & 10th 2008
Convención Anual de Seguros
of the
Mexican Association of Insurers
(Asociación Mexicana de Instituciones de Seguros - AMIS)
June 9th & 10th 2008
It‘s clear from our perspective...2 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
"Cooperation" in Settling Claims - Agenda
2
• Claims “Cooperation” Clauses
• Other Clauses
• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
It‘s clear from our perspective...3 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Agenda
• Claims “Cooperation” Clauses
• Other Clauses:
• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
abcde
It‘s clear from our perspective...4 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (1)
4
What are the options ?
• Claims Notification Clause
• Claims Assistance Clause
• Claims Coordination Clause
• Claims Control Clause
It‘s clear from our perspective...5 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (2)
5
Claims Notification Clause (Example “Property”)
“A condition precedent to any liability of the Reinsurer under
this Agreement is that the Company shall notify the Reinsurer
of any claim for which provisional claims advice is stipulated
within 72 hours of gaining knowledge of the claim and shall
furnish the Reinsurer with all essential information about the
claim, particularly with regard to its estimated amount,
probable cause and planned settlement.”
=> To be generally found in any reinsurance agreement
and indispensable to be agreed upon next to on any
Claims “Cooperation Clause !
It‘s clear from our perspective...6 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (2)
6
Claims Assistance Clause (Example)
“…The Reinsurer shall have the right to participate, in an
internal advisory capacity and at its own expense, in the
settlement of claims for which separate claims notifications
are stipulated in the Schedule, and also to participate in
decisions regarding the legal defence of such claims. For this
purpose the Reinsurer may demand all relevant information
on the claim and its settlement or de-fence. Beyond this, the
Reinsurer may at its own expense and in agreement with the
Company, commission a loss adjustment firm or delegate a
legitimate representative to keep it informed of the course of
the settlement procedure...”
It‘s clear from our perspective...7 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (3)
7
Claims Coordination Clause (Example)
“…A condition precedent to any liability of the Reinsurer under this
Agreement is that the Company shall cooperate with the Reinsurer
in the settlement of claims for which separate claims notifications
are stipulated in the Schedule. This shall mean that from the time it
gains knowledge of the loss occurrence, the Company shall keep the
Reinsurer informed about the development of the claims and the
proposed settlement, including their legal defence. The Reinsurer
shall have the right to give internal advice and to request any
relevant information. The Reinsurer shall bear the cost of its own
involvement in the settlement.
Moreover, the Reinsurer may require that the Company, after
consultation with the Reinsurer, appoint a recognised firm of
independent loss adjusters and that it be kept informed of the
progress of the settlement and/or be given the opportunity to take
part, at its own expense, in the settlement of the claims by
delegating a duly authorised representative…”
It‘s clear from our perspective...8 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (4)
8
Claims (Settlement) Control Clause (Example)
“…A condition precedent to any liability of the Reinsurer under
this Agreement is that the Company, before making final
settlement of claims for which separate claims notifications are
stipulated in the Annexes, shall have submitted the relevant
documents to the Reinsurer and shall have obtained the
Reinsurer's consent.
Moreover, the Reinsurer may require that the Company, after
consultation with the Reinsurer, appoint a recognised firm of
independent loss adjusters and that it be kept informed of the
progress of the settlement and/or be given the opportunity to
take part, at its own expense, in the settlement of the claims
by delegating a duly authorised representative...”
It‘s clear from our perspective...9 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (5)
9
Reasons for Claims “Cooperation” Clauses
• Leading Reinsurer
• Large, lion’s share participation
• Excess of Loss Reinsurance, where the cedent has no
participation in the liability above the priority.
• Dependence resp. interrelation of the cedent to the
insured or a third party profiting from the insurance
cover (e.g. captive business, in-house resp. group-
related insurance companies, e.g. bank-assurance)
It‘s clear from our perspective...10 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (6)
10
Reasons for Claims “Cooperation” Clauses (cont.)
• Participation in heavy and/or very specific or unusual
risks or reinsurance constructions
• Fronting arrangements where the expertise of the
fronting company is not ensured
• Where broker covers are also included in the
reinsurance agreement
• Reinsurer’s support necessary on behalf of the cedent
(e.g. new-business support / set-up of new operation)
It‘s clear from our perspective...11 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Claims “Cooperation” Clauses (6)
11
Advantages & Disadvantages for the Cedent & Reinsurer
• Rights for cooperation
• Obligation to cooperation
• Within the different relationships
• Inter-partes (i.e. cedent/reinsurer)
• Intra-partes (i.e. cedent/(co-)insurer resp. reinsurer/(co-)
reinsurer)
It‘s clear from our perspective...12 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Agenda
• Claims “Cooperation” Clauses
• Other Clauses:• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation
(ECO) & Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
abcde
It‘s clear from our perspective...13 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Other Clauses (1)
13
No Specific Clause at all:
• Cedent has the right to settle the claim
• Reinsurer “has the right to settle the claim”, i.e. to
assess its own liability
• Discussion whether there is “follow the fortune” as
an implied term in the reinsurance agreement
It‘s clear from our perspective...14 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Other Clauses (2)
14
Follow the Fortune/Follow the Settlement/Follow the Actions
• Is there a difference ?
• Generally obliges a reinsurer to pay if within the terms and
conditions of the original policy and the reinsurance agreement.
• The refusal of the reinsurer to follow the actions in respect of
contractually covered risks, is a serious measure which, even if the
withholding of performance is justified, may easily be interpreted
in the market as "harsh" or as an "excuse for reluctance to pay".
• Reasons for declining indemnity:
• Cedent’s business management shows gross infringements of
recognised standards of conduct in (primary) insurance.
• Lack of obligation to follow and no obligation to indemnify as
outside of the scope of cover resp. contractually excluded
It‘s clear from our perspective...15 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Other Clauses (3)
15
Follow the Fortune/Follow the Settlement/Follow the Actions (cont.)
…and its relation to claims “co-operation” clauses ?
• Underlying philosophy of a
• Follow the settlement clause: Reinsurer trusts cedent to make
settlements
• Claims “co-operation” clauses is that settlements should not be
made without reinsurers’ prior approval.
• Tension -> ref. made to SCOR case [1985] -> see further below.
• Practical Consequence:
• Ensure an early and on-going dialogue with the reinsurers about
handling claims
• Safest course of action is for the reinsured not to agree a
(compromise) settlement and wait to be sued by the insured
It‘s clear from our perspective...16 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Other Clauses (4)
16
Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence - Is there the obligation to Follow the Fortune ?
• Ex Gratia: No obligation to follow as any payment by the
cedent is done knowing the non-existence of the this related
obligation and only done due to management or other
similar reasons.
• Extra Contractual Obligation (ECO): No obligation to follow
as any (obligation for) payment on behalf of the cedent is
outside of the scope of the reinsurance agreement.
• Negligence on behalf of the Cedent: No obligation to follow
as this obligation is limited by the obligation of the cedent to
management in a business like manner.
It‘s clear from our perspective...17 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Other Clauses (5)
17
Full Reinsurance Clause
• Usually taken to mean “being a reinsurance of and
warranted same gross rate, terms and conditions as
original”
• Therefore no issue i.r.o. claims “cooperation”
between cedent and reinsurer but as to the question
of “back-to-back”-cover
• The reinsurers rights for claim cooperation as agreed
upon are not curtailed by a “full reinsurance” clause
It‘s clear from our perspective...18 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Agenda
• Claims “Cooperation” Clauses
• Other Clauses:
• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
abcde
It‘s clear from our perspective...19 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
AIG Europe v Faraday [2007] (1) — Appropriateness of Clauses
The Case
• Facultative reinsurance of AIG in respect of a D&O policy issued
to the original insured
• Claim related to a class action in the US vs. the original insured.
• After insurer’s settlement according to the limit of liability
under the original policy, AIG notified reinsurer and sought
recovery.
It‘s clear from our perspective...20 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
AIG Europe v Faraday [2007] (2) — Appropriateness of Clauses
The Reinsurance Claims Co-operation Clause
“…Notwithstanding anything contained herein to the contrary, it is
a condition precedent to any liability under this Policy that:
• The Reinsured shall upon knowledge of any loss or losses
which may give rise to a claim, advise the Reinsurers thereof
as soon as is reasonably practicable and in any event within 30
days
• The Reinsured shall furnish the Reinsurers with all information
available respecting such loss or losses, and shall co-operate
with the Reinsurers in the adjustment and settlement
thereof…“
It‘s clear from our perspective...21 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
AIG Europe v Faraday [2007] (3) — Appropriateness of Clauses
Crucial Points
• Problem: Use of a property claims cooperation clause in a
liability reinsurance wording (“loss” = “actual loss” = “proven
fact”)
• Clear illustration of standard clauses not to be applied to
reinsurance wordings on a “one size fits all” basis.
• Any amendments to standard clauses should be checked to
ensure interpretation as intended.
• Necessary appropriateness especially
• For the specific class of business, and
• In consistence with the remainder of the contract wording.
• Better to use the word “circumstances” than “loss”
It‘s clear from our perspective...22 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
Dornoch vs. Royal & Sun Alliance [2004] — “Loss” or “Actual Loss”?
• Claims Cooperation Clause: 72h notification period for a liability
policy.
• Court interpretation: “actual loss”, which the cedent could not be
expected to have in such a short period.
• Court of Appeal: no breach of the notification clause, as cedent did
not have actual knowledge of actual losses suffered by the 3rd party
claimants vs. the original insured, and would not do so until those
claims had been decided by a court.
• Root cause of the problem:
• Complete mismatch between the notification provisions in the
insurance and those in the reinsurance
• Use of an off-the-shelf clause in the reinsurance that would have
been more suitable for property damage — rather than liability -
cover.
It‘s clear from our perspective...23 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
Gan vs. Tai Ping [2001] — Importance of specific words
Claims Control Clause provided: “...condition precedent to liability that
no settlement and/or compromise shall be made and liability admitted
without prior approval of reinsurers”
The Court of Appeal established
• That “and” meant “or”
• That the Follow the Settlement clause would take effect subject
to compliance with the Claims Cooperation Clause
• Compliance as condition precedent to liability effectively enabling
the reinsurer to decide whether or not to settle a claim, provided
that the reinsurer act reasonably in deciding whether or not to
withhold their approval
=> The Claims Cooperation Clause required strict compliance on
insured’s part to render the reinsurer liable to indemnify
It‘s clear from our perspective...24 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
24
Shinnedean Ltd. vs. Alldown Demolition [2005] — How
Condition Precedent Co-operation Provisions to be Construed
• If a co-operation clause is a condition precedent, then the
breach of that clause will allow reinsurer to decline cover even
if there has been no prejudice. Question: when is there a
breach?
• If a co-operation clause does not specify how long a cedent has
to provide claims information, a "reasonable time" will be given,
to be determined on the facts of the case.
• A reinsurer is entitled to relevant claims material in good time
to assess a claim, whether or not his position is prejudiced.
It‘s clear from our perspective...25 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
25
SCOR [1985] - Tension between the Claims Cooperation and
Follow the Fortune clauses
• The court came to the conclusion “to treat the follow the
settlements clause as applicable only to such settlements as
are approved by the reinsurers”
Practical Consequence:
• Ensure an early and on-going dialogue with the reinsurers
about handling claims
• Safest course of action is for the cedent not to agree a
(compromise) settlement and wait to be sued by the insured
It‘s clear from our perspective...26 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Jurisdiction in the Different Countries
26
…and so on…
…and so on…
…and so on…
It‘s clear from our perspective...27 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Agenda
• Claims “Cooperation” Clauses
• Other Clauses:
• No Specific Clause at all
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: ”Contract Certainty”
• Risk Management Aspects
abcde
It‘s clear from our perspective...28 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Specific Challenges in Latin America (1)
28
…are there any ?
It‘s clear from our perspective...29 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Specific Challenges in Latin America (2)
29
“Specifics” given:
• Role of brokers and sub brokers in the notification
• Knowledge by adjusters / surveyors / representatives of the
reinsurers
• Size of a loss may not exceed deductible when the reinsured first
becomes aware of it
• Reinsurers may take longer time than necessary to agree a
settlement
• Local cedants often think only on the “follow the fortunes” principle
=> Very general topics of utmost importance
It‘s clear from our perspective...30 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Agenda
• Claims “Cooperation” Clauses
• Other Clauses :
• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
abcde
It‘s clear from our perspective...31 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Excursus: “Contract Certainty” (1)
31
London Market Contract Certainty Code of Practice:
“Contract certainty is achieved by the complete and
final agreement of all terms between the original
insured and insurer (resp. insurer (cedent) and
reinsurer) by the time that they enter into the contract,
with contract documentation provided promptly
thereafter”
It‘s clear from our perspective...32 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Excursus: “Contract Certainty” (2)
Implications of “Contract Certainty” for the time being:
• For the London Market:
• Contracts to be final and certain on their effective date.
• Terms must be clearly expressed including any conditions or
subjectivities.
• Contract changes to be certain and documented promptly.
• For other Markets: “very limited”
• “Best Practice”
• Where the business is placed with London Market -> Getting
the Reinsurance Wordings “in time” !
It‘s clear from our perspective...33 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Excursus: “Contract Certainty” (3)
Implications of “Contract Certainty” in the future:
• For the London Market:
• Contracts to be final and certain on their effective date.
• Terms must be clearly expressed including any conditions or
subjectivities.
• Contract changes to be certain and documented promptly.
• For other Markets: “very limited”
• “Best Practice”
• Where the business is placed with London Market -> Getting
the Reinsurance Wordings “in time” !
It‘s clear from our perspective...34 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Agenda
• Claims “Cooperation” Clauses
• Other Clauses:
• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation (ECO) &
Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
abcde
It‘s clear from our perspective...35 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Risk Management Aspects (1)
35
Areas of Preventive Actions / Focus / Action Planning
• Wording & Clauses
• Underwriting incl. Accumulation Control
• Claims Management and Claims Reporting
• Arbitration / Litigation Support
It‘s clear from our perspective...36 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Risk Management Aspects (2)
Wordings, Clauses and the Underwriting Team in general:
• Review of existing wordings with special focus on (i.a.):
• Claims Notification and Cooperation Clauses
• Follow the Fortune & Full Reinsurance Clause (“Back-to-
Back” Cover)
• Applicable law and jurisdiction Clause ?
• Well drafted and communicated underwriting guidelines
• Review of the decision making processes in respect of
wordings (i.a. also: “double-check”-principle)
• Training of underwriters
It‘s clear from our perspective...37 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Risk Management Aspects (3)
Claims Management and Claims Reporting
• Well drafted and communicated claims handling/management
and reporting guidelines (e.g. who names and instructs
assessors, surveyors, adjusters?)
• Claims handler awareness of notification periods and triggers,
as well as accumulation control
• Defined in-house and outside reporting lines
• Every big event should trigger careful analysis.
• Review of the claims handling and settlement decision making
processes (i.a. also: “double-check”-principle)
=> Do not wait until it is too late...
It‘s clear from our perspective...38 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Risk Management Aspects (4)
Arbitration / Litigation Support
• Seat of Arbitration
• Choice of Law
• Overview on who to choose (for the different lines of
business):
• As representing lawyer
• As party’s arbitrator
• Suggestions for the umpire
=> Do not wait until the arbitration request comes in...
It‘s clear from our perspective...39 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
PAVANT INTERNATIONAL RE
Chiltington Hamburg References
39
It‘s clear from our perspective...40 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Chiltington South America References
40
It‘s clear from our perspective...41 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
• Claims “Cooperation” Clauses
• Other Clauses
• No Specific Clause at All
• Follow the Settlement
-> Excursus: Ex Gratia, Extra Contractual Obligation
(ECO) & Negligence of the Cedent
• Full Reinsurance Clause
• Jurisdiction in the Different Countries
• Specific Challenges in Latin America
• Excursus: “Contract Certainty”
• Risk Management Aspects
"Cooperation" in Settling Claims
41
Any Questions
It‘s clear from our perspective...42 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Contact details
Chiltington International GmbH
Halstenbeker Weg 96a
25462 Rellingen
Germany
Dr. Wolfgang Eilers
+ 49 4101 471 — 100
+ 49 4101 471 — 298
Chiltington Internacional S.A. de CV
G. Gonzalez Camarena 1450 piso 2.-
Centro Ciudad Sta Fe
México, 1210 DF
Oscar Botello Moreno
+ 52 55 11 05 05 — 96
+ 52 55 11 05 05 — 53
www.chiltington.com
It‘s clear from our perspective...43 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Disclaimer
43
The information provided in this presentation does in no way
whatsoever constitute legal, accounting, tax or other professional
advice.
While Chiltington International has endeavoured to include in this
presentation information it believes to be reliable, complete and
up-to-date, the company does not make any representation or
warranty, express or implied, as to the accuracy, completeness or
updated status of such information.
Therefore, in no case whatsoever will Chiltington International
and/or its affiliate companies be liable to anyone for any decision
made or action taken in conjunction with the information in this
presentation or for any related damages.
It‘s clear from our perspective...44 "Cooperation" in Settling Claims — AMIS — June 10th, 2008
Thank you for your
attention !
Thank you for your Thank you for your
attention !attention !
abcde
“Consultancy of the Year 2006”
Providing Services to the
Insurance & Reinsurance Industry
Dr. Wolfgang Eilers
Chiltington International GmbH,
Germany
Dr. Wolfgang Eilers
Chiltington International GmbH,
Germany