Insurance law

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It is arguable that the categorisation of disputes between insurers and reinsurers has served to more effectively resolve disputes in law. Evaluate this statement in view of the development of the law in this area and state your view in relation to whether disputes are effectively resolved and as to whether they could still be better dealt with. To begin with, it will be necessary to look to provide a review of the development of the law and practice in this area of study that will consist of first looking to reflect upon the development of insurance law regarding its general application[1]. On this basis, Lloyd’s “provides the facilities for and is the regulator of an English insurance market”[2] that began in the seventeenth century and now has virtually no limitations. But it must also be recognised that Lloyd’s is not specifically an underwriter of insurance because it is actually a ‘society’ of ‘Names’ who underwrite insurance, but do not actively engage in the industry[3], so it is necessary to look to effectively identify the broker to be able to effectively proceed[4]. Recognition of Common Disputes However, more specifically, with regards to the development of the law regarding disputes between insurers and reinsurers, it is important to appreciate disputes have been found to commonly arise in the following circumstances –
  • In relation to issues of disclosure and representation;
  • The binding effect of settlements; and
  • Drafting – with regards to the absence or use of inappropriate or untested wordings.
What has this meant for insurers? Contracts of a ‘facultative’ nature in this area have commonly been found to be in slip form, but more recently the courts in this country have looked to assist parties to reinsurance agreements. By way of illustration, any form of reinsurance agreement that is considered to fall within a direct life policy, so as to contravene the rules regarding insurable interests found within the provisions of the Life Assurance Act 1774, was effectively saved by the decision in Feasey v. Sun Life Assurance Company of Canada[5]. Therefore, it may be arguable the only reason that the market practice of arranging reinsurance before insurance may be considered somewhat superficial on the basis of the decision in General Accident Fire & Life Assurance Corporation & Others v. Tanter (The Zephyr)[6]. Moreover, it is also important to appreciate the ambiguity of words that have also been used in such agreements have been considered to be suitable to justify any finding of the fact the party reinsured should still be entitled to some form of indemnity even where they have been found to have acted to the contrary, illustrated by the decision in Re Charter v. Fagan [1996] 3 All ER 46[7] reached by the House of Lords. How can such problems be effectively resolved? (i) Disclosure In particular, it is necessary to consider the idea of full disclosure specifically so they are then considered fully informed of the risks when it comes to insuring and reinsuring the party concerned. But as to what an insurer needs to be informed about has been found to vary substantially from case to case. Therefore, by way of illustration, this may include – (a) that the director of a bank was under investigation[8]; (b) that a professional sportsman had already sustained an injury previously[9]; and (c) also where the subject matter was not what the parties actually insured (e.g. clocks instead of watches)[10]. As a result, there is a clear need to make sure information is checked rather than simply passed on, illustrated by Assicurazioni Generali SpA v. Arab Insurance Group[11]. (ii) Settlements Generally, it has been recognised that, where the phrase “follow the settlements” is used, the reinsured can prove their loss by either being sued to judgment or award, or by entering into a bona fide commercial arrangement, according to Insurance Company of Africa v. Scor (UK) Reinsurance Ltd[12]. Therefore, this may be seen to be in conflict with the ‘full reinsurance’ clause in view of the fact that the policy terms of the reinsured are generally perceived to be those of the reinsurer so that this effectively meant they cannot adopt their own wording where it would be found to be in conflict with the understanding of the reinsured[13]. (iii) Wording Finally, it is to be appreciated that the courts will not simply fill in any gaps left open by the markets[14] overturning the idea that, according to Phoenix v. Halvanon[15], there were implied terms in certain agreements regarding – (a) keeping records; (b) investigating all claims before liability is accepted; (c) keeping accurate accounts; (d) making sure all amounts owed are paid and collected promptly; and (e) making all documentation available to reinsurers. But the incorporation of terms has also been fraught with difficulty because it does not create ‘back-to-back’ insurance – even though the courts have sought to achieve this[16] - so there has been a need to determine what can be incorporated – mainly (a) provisions directly relating to risk[17]; (b) notice clauses and similar obligations; and (c) dispute resolution clauses expressly included[18]. Moreover, the use of unusual wording (such as ‘follow the fortunes’ rather than ‘follow the settlements’) will also lead to problems because of the fact that it is unclear what the reinsurer is trying to do in such circumstances[19]. Conclusion In conclusion, it is important to appreciate the courts in this country have looked to effectively provide for the resolution of disputes regarding issues of insurance between reinsurers and insurers. This is because, in view of the fact that the courts have looked to recognise where most disputes are likely to arise, the judiciary has been able to develop certain standards in relation to these issues in an effort to resolve disputes quickly and efficiently. However, just because the courts will look to resolve matters amicably does not meant that they will favour the reinsured in all cases where there is a dispute between the insurer and the reinsurer because the judiciary will not look to read terms into any agreement just for the sake of doing so. Therefore, it is arguable that the law is effective at dealing with disputes on this basis. References – Texts, Article & Websites M. D. Carodine ‘Political Judging: When Due Process Goes International’ (2007) 48(4) College of William & Mary, Marshall Wythe School of Law 1159 ‘Halsbury’s Law of England’ Lexis Nexis, Butterworths (2008) R. W. Hodgin ‘Insurance Law: Test & Materials’ Routledge Cavendish (2002) Lexis Nexis Professional (2008) (www.lexisnexisprofessional.com) C. H. Peterson ‘Choice of Law & Forum Clauses & the Recognition of Foreign Country Judgments Revisited Through the Lloyd's of London Cases’ (2000) 60 LA. L. REV. 1259 Westlaw (2008) (www.westlaw.com) Table of Cases American International Marine Agency of New York Inc v. Dandridge [2005] EWHC 829 (Comm) Assicurazioni Generali SpA v. Arab Insurance Group [2002] 2 Lloyd’s Rep IR 131 Bonner v. Cox [2006] Lloyd’s Rep IR 385 Brotherton v. Aseguradora Colsequeros SA (No. 3) [2003] Lloyd’s Rep IR 774 Department of Trade & Industry v. St Christopher’s Motorist Association [1974] 1 WLR 99 Feasey v. Sun Life Assurance Company of Canada [2003] Lloyd’s Rep IR 637 General Accident Fire & Life Assurance Corporation & Others v. Tanter (The Zephyr) [1984] 1 Lloyd’s Rep 58 General Accident Fire & Life Assurance Corporation & Others v. Tanter (The Zephyr) [1985] 2 Lloyd’s Rep 529 Groupama Navigation v. Catatumbo [2000] 2 Lloyd’s Rep 350 Insurance Company of Africa v. Scor (UK) Reinsurance Ltd [1985] Lloyd’s Rep 312 International Insurance Plc v. Astrazeneca Insurance Co Ltd [2006] Lloyd’s Rep IR 409 King v. Brandywine Reinsurance Company (UK) Ltd [2005] Lloyd’s Rep IR 509 Phoenix v. Halvanon [1985] 2 Lloyd’s Rep 599 Prifti v. Musini Sociedad Anonima de Seguros y Reaseguros [2004] Lloyd’s Rep IR 528 Re Charter v. Fagan [1996] 3 All ER 46 Society of Lloyd’s v. Ashenden No. 98 C 5335, 1999 WL 284775 WISE Underwriting Agency Ltd v. Grupo Nacional Provincial [2004] Lloyd’s Rep IR 764 Table of Statutes Life Assurance Act 1774 1

Footnotes

[1] See, for example, the decisions in Department of Trade & Industry v. St Christopher’s Motorist Association [1974] 1 WLR 99 & The Good Luck [1990] 1 QB 818. [2] See Society of Lloyd’s v. Ashenden No. 98 C 5335, 1999 WL 284775 – Peterson. C. H ‘Choice of Law & Forum Clauses & the Recognition of Foreign Country Judgments Revisited Through the Lloyd's of London Cases’ (2000) 60 LA. L. REV. 1259. [3] Carodine. M. D ‘Political Judging: When Due Process Goes International’ (2007) 48(4) College of William & Mary, Marshall Wythe School of Law 1159. [4] Hodgin. R. W. ‘Insurance Law: Test & Materials’ Routledge Cavendish (2002). [5] [2003] Lloyd’s Rep IR 637. [6] [1985] 2 Lloyd’s Rep 529 - see, however, the earlier decision in General Accident Fire & Life Assurance Corporation & Others v. Tanter (The Zephyr) [1984] 1 Lloyd’s Rep 58. [7] [1996] 3 All ER 46. [8] See Brotherton v. Aseguradora Colsequeros SA (No. 3) [2003] Lloyd’s Rep IR 774. [9] See Prifti v. Musini Sociedad Anonima de Seguros y Reaseguros [2004] Lloyd’s Rep IR 528. [10] See WISE Underwriting Agency Ltd v. Grupo Nacional Provincial [2004] Lloyd’s Rep IR 764. [11] [2002] 2 Lloyd’s Rep IR 131. [12] [1985] Lloyd’s Rep 312 – see, however, King v. Brandywine Reinsurance Company (UK) Ltd [2005] Lloyd’s Rep IR 509. [13] See Assicurazioni Generali SpA v. Arab Insurance Group [2002] 2 Lloyd’s Rep IR 131. [14] See Bonner v. Cox [2006] Lloyd’s Rep IR 385. [15] [1985] 2 Lloyd’s Rep 599. [16] Groupama Navigation v. Catatumbo [2000] 2 Lloyd’s Rep 350. [17] See American International Marine Agency of New York Inc v. Dandridge [2005] EWHC 829 (Comm). [18] See Prifti v. Musini Sociedad Anonima de Seguros y Reaseguros [2004] Lloyd’s Rep IR 528 [19] See International Insurance Plc v. Astrazeneca Insurance Co Ltd [2006] Lloyd’s Rep IR 409.
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