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Recovering from Reinsurers

Recovering from Reinsurers . V Russian Insurance and Reinsurance Rendezvous Andrew Tobin, Solicitor Advocate Clyde & Co, London Andrew.tobin@clydeco.com +44 (0)20 7623 1244. About Clyde & Co. Leading Insurance and Reinsurance Law Firm in World

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Recovering from Reinsurers

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  1. Recovering from Reinsurers V Russian Insurance and Reinsurance Rendezvous Andrew Tobin, Solicitor Advocate Clyde & Co, London Andrew.tobin@clydeco.com +44 (0)20 7623 1244

  2. About Clyde & Co • Leading Insurance and Reinsurance Law Firm in World • 16 Offices; lawyers from 20+ jurisdictions, including Russia; 1000 staff – 500 lawyers • Insurance/Reinsurance largest department • Also leading firm in Transport, Trade and Natural Resources, Shipping and Aviation • Act for all major insurers and reinsurers, and Lloyd’s

  3. Our International Network London Guildford Cardiff St Petersburg St Petersburg London Guildford Cardiff Moscow Paris Paris Nantes Belgrade Belgrade Nantes Piraeus Piraeus Shanghai New York Los Angeles Abu Dhabi Abu Dhabi Dubai Hong Kong Hong Kong Dubai Caracas Singapore Caracas Singapore Rio

  4. Introduction • Russian market grows – demand for reinsurance grows. • Need to be prepared – current reliance on brokers • Legal documents need legal approach • Importance of English Law and practice • London, Bermuda, Gibraltar, Ireland, Singapore, Hong Kong, Dubai. • US • London market wordings

  5. Topics • Basic overview • Types of Reinsurance • Follow the Settlements • Claims Control / Claims Co-operation Clauses • Conditions Precedent • “Ex gratia” – “without prejudice” settlements; commutations • Practical tips

  6. Types of Reinsurance • Proportional: • Quota Share; Surplus; Facultative/Obligatory treaty • Non- Proportional • Excess of Loss – Layers

  7. 10M REINSURER A 10% REINSURER B 20% REINSURER C 25% REINSURER D 25% REINSURER E 5% REINSURER C 5M REINSURER B 1M REINSURER A INSURANCE COMPANY 500,000 500,000 INSURANCE COMPANY 0 NON PROPORTIONAL PROPORTIONAL

  8. Bonner v Cox - “Aon 77” • Bonner v Cox [2005 EWCA Civ 1512] • “The fundamental difference between these two types of reinsurance is that the former involves a sharing of risks (premium and losses) between reinsured and reinsurer. The latter does not.” • In excess of loss contracts: “The commercial interests of the reinsured and of the reinsurers do not overlap. They are not partners in a joint venture; each has their own separate commercial interests which will probably conflict; one profits at the expense of another …”

  9. What does reinsured have to prove? • Where no “follow the settlements” clause • Reinsured must strictly prove: • Liability under original insurance policy • AND – that liability covered under reinsurance policy • Importance of legal liability – Commercial Union v NRG Vicory Reinsurance - [1998] 2 Lloyd’s Rep 600 • Attempts to get round strict rule • “Follow the settlements” • “Follow the fortunes” (US) • “Pay as may be paid” • Many cases on particular wordings • All designed to reduce what reinsured has to prove. • Stops reinsurer arguing that insurance company was not in fact liable on claim. • BUT – does not automatically force reinsurer to pay.

  10. “Follow the Settlements” • Insurance Co of Africa v Scor • [1985] 1 Lloyd’s Rep 312; [1983] 1 Lloyd’s Rep • Property loss • “Being a reinsurance of and warranted same … terms and conditions as and to follow the settlement of the Insurance Company of Africa”. • Do reinsurers simply have to pay whatever the reinsured settles? NO • Court said: Reinsured must prove: • Loss as recognised by them falls within reinsurance; AND • In settling the inwards claim, insurers have taken all proper and business-like steps in making a settlement” See also Hill v Mercantile & General

  11. Proper and Businesslike? • What would your reinsurers expect to see? • Proper and full file • Proper loss adjusters and other expert report • Notification of loss • All proper defences raised in litigation • Legal advices as to a) Coverage and b) Settlement • Decision to settle based on legal liability • Evidence on file of decision making – organised and rational.

  12. Claims Control Clause / Claims Cooperation • When Used? • Much variation in wording; exact wording very important • Typical Claims control clause – NMA 2738 “…It is a condition precedent to Reinsurers' liability under this Reinsurance that: • The Reinsured shall give to the Reinsurer(s) written notice as soon as reasonably practicable of any claim made against the Reinsured in respect of the business reinsured hereby or of its being notified of any circumstances which could give rise to such a claim. (b) The Reinsured shall furnish the Reinsurer(s) with all information known to the Reinsured in respect of claims or possible claims notified in accordance with (a) above and shall thereafter keep the Reinsurer(s) fully informed as regards all developments relating thereto as soon as reasonably practicable. • The Reinsurer(s) shall have the right at any time to appoint adjusters and/or representatives to act on their behalf to control all investigations, adjustments and settlements in connection with any claim notified to the Reinsurer(s) as aforesaid. (d) The Reinsured shall co-operate with the Reinsurer(s) and any other person or persons designated by the Reinsurer(s) in the investigation, adjustment and settlement of such claim.”

  13. Claims Control / Claims Cooperation • “Condition Precedent” • If breached – reinsurers do not have to pay claim • Even if reinsurer suffered no prejudice • Strict compliance with clause necessary – very strict English law concept – not exist in Civil Law countries. • Claims Control/Cooperation and follow the Settlements? • You must still comply with claims control/cooperation clause. • Cannot rely on follow settlements. • See Gan v Tai Ping; ICA v SCOR

  14. Without Prejudice / Ex gratia Settlements • “Ex gratia” and “without prejudice” payments may not be covered by a reinsurance • See wording • Assicurazioni Generali v CGU [2004]

  15. Commutation • When a reinsurer/insurer wish to settle all their outstanding and future claims, can the reinsurer claim that from its reinsurer (“retrocessionaire”) • Past losses may be payable on normal principles • But – IBNR (“Incurred but not reported”) may cause problems. • Arguably, commutations not recoverable at all (Overseas Union v Home Insurance – Singapore High Court)

  16. Other Important Areas • Limitation • Rights of Inspection • Overriding Exclusions in Reinsurance • Misrepresentation / Non-disclosure • Arbitration / Litigation / Law Jurisdiction

  17. Practical Advice • Do not always rely on brokers • Behave in a “proper and businesslike way” in claims handling • Proper files and accounts for each loss • Proper loss investigation • Experienced / trained staff • Legal advice as to settlement / coverage if not clear • Know your reinsurance contract • Is loss covered under insurance and reinsurance? • Follow the settlements? • Claims control? • English / French/ German / Russian law? • Take legal advice

  18. Disclaimer This is for information and general discussion purposes only. It is not legal advice.

  19. GOODBYE! THANK YOU! Andrew J Tobin Solicitor Advocate Clyde & Co, London Andrew.tobin@clydeco.com (0)207 648 1744

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