The Law of Reinsurance

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In England and Bermuda. Invalid code. Promotion code:. The Law of Reinsurance has established itself as the definitive guide on reinsurance law and practice in England and Bermuda.

Chapter 5. Credit for Reinsurance.

This title not only addresses the core principles of reinsurance contracts and regulation but also relevant areas of agency law and dispute resolution procedure. However, there are two ways a third party may do so. First, an insured may assign a right to a third party that allows it to sue the insurer. All states allow for some right of assignment for an insurance claim, although a few states limit the assignability of certain rights.

For example, in Georgia, a statutory claim for a bad-faith settlement can be pursued only by the insured and is not assignable. A minority of jurisdictions allow for suit without first winning the underlying substantive dispute. The general common law rule is that an insured is not in privity of contract with a reinsurer and thus has no right of action against the reinsurer. Separately, in certain jurisdictions, such as New Jersey, a reinsurer may be liable to the insured if the reinsurer intervenes in the defence and management of suits brought against the direct insurer.

In these arrangements, a primary insurer cedes the risk of loss to a reinsurer and the reinsurer controls the underwriting and claims handling process of the policy. The harshest remedy available to an insurer in these circumstances is rescission, where the policy is declared void ab initio and the premium returned. To access the remedy of rescission, an insurer must usually show that the misrepresentation or omission was material and there was an intent to deceive.

Other remedies available to an insurer for misrepresentation or non-disclosure include non-payment or the ability to cancel a policy. Material omissions that are the equivalent of a misrepresentation may expose an insured to rescission of the policy or other contractual remedies. Moreover, insureds are generally bound by a duty of good faith to disclose information. This duty is implicated in particular when an insured has exclusive or peculiar knowledge of a material fact that may influence the writing of a policy.

However, insurers have a duty to investigate representations on applications before taking action. With respect to reinsurance firms, ceding companies — companies that transfer the risk from an insurance portfolio to a reinsurance firm — have an affirmative duty of good faith to disclose all material information even if the reinsurer fails to ask. There is no generally applicable, automatic right of subrogation.

Instead, the right arises in certain conditions. First, the contract with the insured may itself include a right of subrogation.

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Second, an insurer may move for a judicially crafted remedy known as equitable subrogation that allows an insurer to sue a third-party tortfeasor. Although available in all states except Louisiana, the grant of equitable subrogation is discretionary. Courts generally look to whether the party claiming subrogation: 1 paid its underlying debt; 2 paid its debt only because of some legal obligation; and 3 is secondarily liable for the debt.

Moreover, as an equitable remedy, the court will also inquire as to whether injustice will be done by granting subrogation. Does this depend on the value of the dispute? Is there any right to a hearing before a jury? Both state and federal courts are sites of insurance disputes. By itself, the value of a dispute does not determine what forum is appropriate — high-value disputes are litigated in both federal and state courts, though federal and state courts have various minimum dollar thresholds for jurisdiction. Instead, the choice between federal and state courts is often driven by strategic considerations as well as jurisdictional requirements.

State courts are courts of general jurisdiction and are empowered to hear all manner of claims, including insurance disputes. In comparison, federal courts have a number of jurisdictional requirements the parties to a suit must meet. The most foundational of these requirements are proper subject matter and personal jurisdiction over the parties. The right to a jury trial varies between federal and state courts. The Seventh Amendment of the United States Constitution provides a right to a jury trial in civil cases for some legal claims, including those for money damages.

However, the Seventh Amendment right does not pertain to equitable relief, meaning a party has no right to jury trial for remedies like an injunction, garnishment, or rescission.

“O’Neill & Woloniecki’s “The Law of Reinsurance” (3rd Ed. Sweet & Maxwell)”

In comparison, while the Seventh Amendment right does not apply to the States, nearly every state guarantees some form of a civil jury trial for legal claims. The median length of an insurance case in federal court is days, but an insurance case that implicates other statutes and complex commercial dealings may last significantly longer. For instance, the median length of multi-district insurance litigation is days. As compared to foreign jurisdictions, courts in the United States have significant powers to order discovery of documents in commercial actions.

State rules authorising discovery are generally similarly expansive.

Reinsurance Law Definition

To begin discovery, the parties usually exchange and negotiate discovery requests. A court will rule on any disputes and may compel production of a valid request. At times, a court must limit discovery if it determines that a party seeks information that is duplicative or can be obtained from a less burdensome source, a party has had a significant prior opportunity to obtain the information, or when the burden of producing the information outweighs its benefits.

Discovery from non-parties requires a subpoena.

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Both federal and state procedural rules detail certain service and geographical requirements in obtaining and executing a subpoena. Moreover, courts are sensitive to the costs imposed on non-party discovery and require a party seeking third-party discovery to take reasonable steps to avoid imposing undue burden or expense on non-parties. Documents containing communications between lawyers and their clients are shielded from disclosure by the attorney-client privilege. However, a party cannot claim the privilege if the communication does not seek, provide, or otherwise reflect legal advice or if the communication involves a third party that breaks the privilege.

Similarly, a party can assert the work-product protection to withhold from disclosure materials created in anticipation of litigation, regardless of whether they are created by attorneys. However, the work-product privilege is not absolute and a discovering party may seek disclosure of such documents if it demonstrates a substantial need and the inability to obtain the substantial equivalent of the materials by other means without undue hardship.

Documents produced in the course of settlement negotiations are not always protected from production. The majority of courts do not recognise the privilege, but some have endorsed a limited application of the privilege if the production of certain documents may chill settlement discussions.

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As a general matter, a court can require a witness to testify in a civil case through a subpoena. However, this power is limited by jurisdictional and evidentiary concerns. Moreover, a witness can assert various privileges — such as the Fifth Amendment right against self-incrimination or the spousal privilege — to abstain from testifying. In general, depositions of witnesses not present at trial may be used as evidence in federal court as long as their use satisfies several conditions enumerated under Federal Rules of Civil Procedure 32, the most significant of which is that the use is permissible under the Federal Rules of Evidence.

The impact of IFRS 17 on reinsurance

In other words, the deposition must at least be relevant and fall within an exception to the hearsay rules or not be subject to hearsay rules in order for it to be offered for truth. For example, if a witness cannot be present at court due to death, illness, significant physical distance, or refuses to attend even if subpoenaed, his or her deposition can usually be introduced as evidence.

Is it common to have a court-appointed expert in addition or in place of party-appointed experts? A court must certify an expert before he or she is allowed to present expert testimony. State and federal law diverges over the proper standard for certification. Although courts are allowed to appoint experts, they rarely exercise that power. Instead, it is more likely that the parties will submit their own experts for approval.

Experts in an insurance dispute can provide helpful specialised knowledge, such as calculating the magnitude of damages or reconstructing accidents. The discussion on good faith, the duty of fair presentation, warranties and other terms in Chapter 6 has been revised as an integrated commentary of the Insurance Act for England and the pre-Insurance Act for Bermuda.

Chapter 8 has been updated with sections on mortality and longevity risks and insurance linked securities. Chapter 9 has been extensively re-written to restate the law on attribution of knowledge and ex turpi causa and its impact on the rights of re insurers and third parties. Chapter 14 on reinsurance arbitration looks at new developments concerning the appointment of arbitrators and their duties of independence and confidentiality.

Chapter 15 includes forecasts about the regulatory regime post-Brexit. This book continues to provide the most comprehensive guidance on reinsurance law and practice in England and Bermuda: Covers the distinct areas of reinsurance contracts, disputes, and regulation.

Looks at the legal definition of reinsurance and outlines basic concepts and terminology. Examines the nature and purpose of reinsurance transactions. admin