Contracts of insurance & reinsurance
Contracts of insurance & reinsurance are not defined in statute, but various definitions can be found in the insurance and reinsurance case law.
A general contract of insurance can be said to exist if an insurer undertakes in return for the contract price to pay money if a certain specified event occurs which is both uncertain and damaging to the insured.
It may be more accurate to regard reinsurance as a type of liability insurance protecting the insurer against possible liability to an insured. It is possible for a contract of reinsurance to be in place before the underlying insurance contract.
Insurance contracts do not need to take any particular form. Indeed they do not need to be in writing. In most cases however they will be evidenced by a written contract referred to as the insurance or reinsurance policy. In relation to employers’ liability and motor insurance there are certain restrictions as to what a contract can provide.
Typical clauses that can be expected in an insurance policy include:
- Type and scope of insurance cover
- Value of cover
- Triggering events that will make the insurance operative
- Exclusions expressly providing what is not covered
- Conditions (the breach of which entitle the insurer to claim damages from the insured)
- Conditions precedent (the breach of which can discharge the insurer from any liability)
- Warranties (something which the insured promises to be true and which must be true if the insurer is to be liable under the policy)
Before entering into a contract both parties are required to comply with a duty of utmost good faith. This means full disclosure of all material facts. Failure to comply by the insured can allow the insurer to avoid the contract.
Reform is being considered in this area in relation to consumer insurance contracts however and it may be that in the future only information specifically asked of the insured in a questionnaire will need to be disclosed.
Typical clauses in a reinsurance policy would include:
- Right to inspect the records of the reinsured
- A follow settlements clause seeking to bind the reinsurer to settlements by the reinsured
- Claims cooperation or claims control clauses allowing the reinsurer some input in claims on the insured risk made against the reinsured
- Arbitration clause.
Insurance & reinsurance dispute resolution
Insurance litigation can involve a multitude of issues. It may be necessary to conduct extensive research into the surrounding facts of the dispute to identify if the liability claimed can be established in court. Knowing the relative strength of the claim either as a claimant or defendant in any litigation provides a firm foundation for conducting negotiations going forward.
Careful and thorough analysis of the insurance contract governing the relationship between the parties is also vital. Calculating the impact of a particular clause on the possible outcome of any litigation requires a solid grasp of the principles of contract construction and insurance law.
It is common practice for reinsurance contracts to include an arbitration clause. There may be other alternative dispute resolution provisions such as a requirement to submit the dispute to a reinsurance mediator before attempting arbitration or litigation. If the reinsurance contract concerns an issue which is technically complex it may also contain a provision requiring that issue to be referred to expert determination before the matter progresses. Where clauses such as this are involved it is wise to keep an eye on any limitation deadlines that may apply to subsequent litigation.
Arbitration clauses in reinsurance contracts will vary in terms of the number of arbitrators required, their experience and qualifications and procedural issues such as the exchange of evidence and timetable. Instead of making specific provisions the contract may simply incorporate the arbitration rules of an arbitral society such as the Aida Reinsurance and Insurance Arbitration Society. Often arbitrators will be previous directors of insurance or reinsurance companies to ensure that the decision reached reflects market practice.
Should an insurance or reinsurance dispute go to litigation there are usually governing law and jurisdiction clauses to consider. Minor claims could be dealt with by any court in England & Wales if those courts have jurisdiction, but complex reinsurance and insurance issues are recognised by the courts as a specialist area and so may be handled in the Commercial Court by judges with experience of reinsurance and insurance issues.