A Guide to Reinsurance Law

Robert Merkin

• Publisher: Informa Law from Routledge
• Year: 2013
• Print ISBN: 9781843116783
• eBook ISBN: 9781317912828
• Edition: 1
• Topic: Law
• Subtopic: Financial Law
• Index: Law

This practical guide offers a useful introduction to reinsurance, taking you step by step through the associated issues you really need to know about. An introduction is provided, setting the scene for further chapters on key topics such as the formation of agreements, terms, rights and obligations. The book covers the following areas: Nature of Reinsurance, Formation of Reinsurance, Agreements, Utmost Good Faith, Terms of Reinsurance Agreements, Rights and Obligations of the Parties, Follow the Settlements and Follow the Fortunes, Claims, Intermediaries, Jurisdiction and Applicable Law, Arbitration.

Chapter 1

The Nature of Reinsurance

A list of potentially interesting web sites of relevance to this book

IRMI.com (International Risk Management Institute—U.S.)

BILA.org.uk (British Insurance Law Association—U.K.)

BRMA.org (Broker Reinsurance Market Association—U.S.)

Law.cornell.edu (Cornell University—U.S.)

Llgm.com (Le Boef Lamb—U.S.)

Ealaw.com (Edwards and Angell—U.S.)

DAC.co.uk (Davies Arnold Cooper)

BLG.co.uk (Barlow, Lyde & Gilbert)

[email protected]

[email protected] (Berwin Leighton Paisner)

Onlinedmc.co.uk

legal-definitions.com

marketreform.co.uk (London Market Slips, Contract Certainty …)

Introduction

The aim of this book is not to teach the principles of reinsurance as such but to try to explain and encourage thought on the legal principles applying to reinsurance.

However, as we progress through this chapter we hope to explain the basic purposes of the different types/styles of Reinsurance albeit it at a basic level —the detail will become more apparent as one reviews words used to express intent within differing styles of reinsurance contract.

This chapter provides an introduction to the text by:

• explaining (or confirming) the basic concepts of Reinsurance
• encouraging lateral thinking re the meaning of words in Slips and Wordings
• touching on some of the core legal principles that will be explained in more detail later in the course
• encouraging further research into some of the issues raised

Within this chapter differing examples of clauses used will be included—in no case are they being put forward as the “correct” version. They are being provided as examples of words that are used, and are included to help explain the concepts and core legal principles from an English law perspective.

With regard to legal principles, except where specifically mentioned these are based on the Common Law of England and Wales. It could be dangerous to assume that the principles that are outlined necessarily apply elsewhere.

However, it is important to realise that English legal decisions will be “highly persuasive” in situations within Common Law based countries, particularly where there is little local legal discussion on matters such as Reinsurance. Certainly judges in Common Law jurisdictions do review decisions in other jurisdictions, e.g. England, Australia, Ireland, Singapore, many US states … sometimes agreeing and other times not!

Arbitration

This will be dealt with in Chapter 10 but in reading this and other chapters it is important to remember that many issues are decided by arbitration. Such decisions do not create legal precedent and are often never reported because of confidentiality clauses. The growing trend towards ADR (alternative dispute resolution) via mediation … should also be borne in mind.

You will see this symbol in this book encouraging you to take a “legal” time out. Consider the question or case asked using your own logic, perhaps a little research?—then review the answer or opinion given. Please remember you are entitled to your views as much as anyone else. The important point of these “breaks” is to encourage you to think laterally through the logic and the reasons for the decisions made.

On other occasions you will see the coffee cup symbol. Questions here are more to do with reinsurance issues—again step back and think through the question and then work through the answer. Even on a law course you might need a calculator.

What follows is based on the author’s extensive experience in reinsurance and except where specifically indicated, opinions expressed reflect his own personal views, not a specific legal opinion.

Legal views come from a range of sources—particularly including:

Reinsurance Practice and the Law—published by LLP (Informa), prepared by Barlow Lyde & Gilbert;

The Law of Reinsurance—published by Sweet and Maxwell; CMSCameron McKenna and various notes issued by lawyers such as:

Davies Arnold & Cooper, Barlow Lyde and Gilbert, Berwin Leighton Paisner, Kendal Freeman.

Where appropriate, a full reference has been made to relevant court cases. Cases reported in Lloyd’s Insurance and Reinsurance Law Reports can be viewed online at www.insurancelawreports.com. Look for this symbol:

Whether one operates mainly in Common Law jurisdictions or not, the knowledge gained in this and other Modules will still be invaluable. They should encourage thought on how different people can write the same thing, view the same thing and come to different interpretations of the meaning, and how other “forums” and legal bases, e.g. civil law, might view the same things differently.

Common law—civil law

A simple review of the core differences “as a place to start”. In my opinion some of the core differences between common law and civil law legal systems are:

Common law	Civil law
Concept from England 12th century – creating “standard law”	Concept from Rome 1st–2nd century
Based on the concept of: – interpretation of the law as written – precedent – decisions of higher courts to be followed by lower court	Based on the concept of interpretation of the Aims of Codes – no basic concept of precedent
Meaning of the words used in contracts VERY IMPORTANT	Today’s view of the objective of the Code is VERY IMPORTANT
Aims of the parties of lesser importance	Meaning of the individual word used of lesser importance
Decisions tend to be long and full of legal reasoning	Decisions tend to be short—NOT trying to create precedent
Past court cases very important	Past court cases not normally important
Most countries where “England” was “involved” tend to have a common law structure – e.g. US (most states), Ireland, Singapore, Australia, NZ, Caribbean	Most of Europe, Asia, Latin America, including “newly created countries”, will create a legal system based around codes and their constitution.

What is Reinsurance?

Reinsurance is the transfer of risk from an insurer to another party (reinsurer).

In law?

Basically reinsurance and retrocession (reinsurance of reinsurance) are seen to be insurance contracts.

• “insurance of insurers” (Reinsurance in Practice, Kiln).
• “the insurance of contractual liabilities to pay claims incurred under contracts of direct insurance or reinsurance” (Reinsurance, Carter).
• “any contract which is placed by or for the benefit of an in...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Authors’ Biographies
• Table of Cases
• Table of Legislation, Conventions and Rules
• 1. The Nature of Reinsurance
• 2. Formation of Reinsurance Agreements
• 3. Utmost Good Faith in Reinsurance Agreements
• 4. Terms of Reinsurance Agreements
• 5. Rights and Obligations of the Parties
• 6. Follow the Settlements and Follow the Fortunes
• 7. Claims
• 8. Intermediaries
• 9. Jurisdiction and Applicable Law
• 10. Arbitration
• Appendix 1: LMP Schedule
• Appendix 2: Subjectivities
• Appendix 3: The provisions of the Marine Insurance Act 1906
• Appendix 4: Comparison of LCIA and ARIAS Arbitration Rules
• Appendix 5: Resolution of jurisdictional disputes under the Arbitration Act 1996
• Bibliography
• Answers to Test Your Understanding Questions