Transcript Slide 1

RMG107
Contract Certainty –
An Imperative or an Impossible Dream
April 26th, 2006
8:00am – 9:30am
Introduction
Roger Gillett
ACE Risk Management International
A Broker’s Point of View
Alan Waring
Crump International Ltd.
A Lawyer’s Viewpiont
Kim Wilkerson
Attride-Stirling & Woloniecki
A Risk Manager’s Perspective
Diane Labrador
Intel Corporation
RMG107 – CONTRACT CERTAINTY –
AN IMPERATIVE OR AN IMPOSSIBLE DREAM
A Broker’s Point of View
Presenter: Alan Waring
Crump International Ltd.
Overview
• Overview of Contract Certainty and Current Performance
Expectations.
• Most wordings are not agreed to prior to inception.
• Creates uncovered claims, errors and omissions, massive legal bills
etc…
• Why…? Fingers pointed in all directions.
• Underwriters – not flexible, treaties, slow, best terms issue.
Brokers – slow, not demanding, poor planning – time frames.
Clients – expect a lot, push for best wording – creates delays.
Current Performance
Expectations
• Clients expect more … however there has to be dramatic
change.
• “Contract Certainty is achieved by the complete and final
agreement of all terms (including signed lines) between the
insured and insurers before inception”. *
• “The full wording must be agreed before any insurers formally
commit to the contract”. *
• Policy issued within 30 days.
( *Definitions used for London Market business.)
Current Performance
Expectations
•
Insurer/Broker Standard Wordings – Clients do not want it.
•
“Best terms” being mandated by most insurance carriers.
•
Barriers to improving … something has to give.
•
“Insurers need to change most – Insurer resource and mind set …
biggest obstacles to contract certainty … brokers more agile”. (AIRMIC
Client Survey 1/06)
•
Clients/Broker must meet with underwriters 3-4 months prior to
meetings.
•
Complete policy wording in submission – no need to “overtweak
“wordings.
•
Statement from client/broker in submission saying they will not accept
“Best Terms” wording.
Comparison by Major
Markets
• Comparison - London, Bermuda and the U.S.A.
• FSA, the Market Reform Group, Sarbanes, Spitzer,
Bermuda Monetary Authority
• Regulating
• The Insurance Carriers, Brokers and Clients
• Multiple markets on large risks with different
regulations and procedures. Creates conflict.
Comparison by Major
Markets
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
London market – Financial Service Authority
Well ahead of the pack – Exceeded the first industry target (poor history)
65% of all contracts agreed during December were “certain”, target was 30%
85% is year end target (set 4/05)
Contract Certainty Code of Practice and checklist – 250 have formally signed
their agreement.
Seminars, communications, training courses, etc.......
Code of practice set for legacy policies
Per the FSA, no more “deal now, detail later”.
USA - Spitzer & Sarbanes Oxley
Focus on premium, income, transparency & marketing
Less on Contract Certainty
Bermuda - Very few mandates to date
Following the US and London
Insurance Carriers taking the lead (ACE Bermuda)
Bermuda Monetary Authority – no visible role
RMG107 – CONTRACT CERTAINTY –
AN IMPERATIVE OR AN IMPOSSIBLE DREAM
A LAWYER’S VIEWPOINT
4 Propositions on Contract Certainty
Presenter: Kim Wilkerson
Attride-Stirling & Woloniecki
Propositions
1. It’s the last agreed contract that counts – so
get it right the last time
2. An agreed and timely issued policy will not
cure all disputes – but will go a long way
3. The rush to “certainty” brings its own
challenges
4. The more innovative the product, the less
likely “certainty” is achievable
PROPOSITION NO. 1
It’s the last agreed contract that counts – so
get it right the last time
•The relationship of binder/slip v policy
•The legal status of these contractual documents
•One lesson from WTC
THE BINDER
SR International v World Trade Center Properties LLC
•
An insurance binder is a unique type of contract. While not all the
terms of the insurance contract are set forth in the binder, “a binder is
a present contract of insurance…”
Ell Dee Clothing v Marsh, 247 NY 392 396 (1928)
•
A binder is “a short method of issuing a temporary policy for the
convenience of all parties, to continue until the execution of the formal
one.”
Lipman v Niagara Fire Insurance Co., 121 NY 454, 548 (1890)
•
The New York Court of Appeals has made it clear that when a binder is
signed, “the contract of insurance is closed and the binder becomes
in effect the same as a regular insurance policy…”
THE SLIP
London Market Practice
• Prima facie, an insurer in the London market is committed to a
risk when he scratches a slip
ERC Frankona Reinsurance v American National Insurance Company
[2005] EWHC 1381 (Comm)
• When the policy has been issued it is the policy and not the slip
which constitutes the contract between the parties
• Where there is no subsequent policy or wording, the slip
stands alone.
PROPOSITION NO. 2
An agreed and timely issued policy will not
cure all disputes – but will go a long way
 Governing Law Clauses (or the lack thereof) – Express
Yourself!!
 US service of suit + no express law = $$$
PROPOSITION NO. 3
The rush to “certainty” brings its own
challenges
 The use of standard agreements and clause books
• Dornoch v Royal Sun Alliance
• Longmore J: The concept of “business common
sense”
PROPOSITION NO. 3
Dornoch v Royal Sun Alliance
“business common sense”
The Question:
In interpreting the meaning that should be
given to words in a contract, why can’t
judges just apply the “business common
sense” meaning, which is after all, surely
what the parties would have intended?
The Answer:
Longmore J:
“Attractive as the proposition is in general, there are
dangers in judges deciding what the parties must
have meant when they have not said what they
meant to say for themselves. This is particularly
dangerous when the parties have selected off the
shelf or the precedent book a clause which turns
out to be unsuitable for its purpose”
PROPOSITION NO. 4
The more innovative the product, the less likely
“certainty” is achievable.??
 Cat Bonds/Industry Loss Warrants
 Insurance???
 Proper Contractual Framework even more necessary
RMG107 – CONTRACT CERTAINTY –
AN IMPERATIVE OR AN IMPOSSIBLE DREAM
A Risk Manager’s Perspective
Presenter: Diane Labrador
Intel Corporation
Key Points
• Painful Lessons
– A Surprise Legal Review
•
Internal Expectations
– Governance
– Collectibility
• Risk Manager’s role- Change (& enforce) the
expectation
–
–
–
–
Setting the expectation
Process Discipline
Vendor Accountability
Legal Certainty
Practical
Considerations
• Communications
• Incentives
– Broker Scores ‘points’ for on time policy delivery
– Insurer is acknowledged/recognized with a kudo /other positive
reinforcement
• Disincentives
– Loss of points/penalties for every day outstanding
– Installment premium payments (1/2 down; remainder on
delivery)
Other Tricks:
– Visible tracking mechanism: email diary notification issued to all
program participants ( 14 days to renewal, 13 days, 12…)
– Weekly notice to broker/insurer of lack of delivery, with an
escalation to management chain
Ideal : Use of
Technology
• Model: digital version of the policy is provided at
date of renewal
– Pre-renewal Working sessions (ex. on line Net
meeting) tracking changes/modifications.
– Set aside items where parties disagree, and set up
separate time line to complete them
– Direct involvement of RM team, not defaulted to the
broker
RMG107 – CONTRACT CERTAINTY –
AN IMPERATIVE OR AN IMPOSSIBLE DREAM
An Underwriter’s Perspective
Presenter: David Cash
Endurance
Contract Certainty – An
Underwriter’s Perspective
In considering Contract Certainty two items dominate the
discussion
1. Document Certainty :– Delivery of a completed contract
within a reasonable [30 day] period of time.
2. Coverage Certainty :– Delivery of a contract that
provides the RM with certainty as to the extent and
interpretation of coverage.
Depending upon the coverage being provided both items can
present challenges to the client, broker and insurer
Impediments to Achieving
Contract Certainty
1. Complexity of Coverage :– 3rd Party Liability vs. Named
Peril coverage.
2. Competition on the Basis of T&C’s :– This has long been
considered desirable both for clients and insurers.
3. Large Scale Syndication :– Layering represents a best
practice as respects pricing, but not coverage certainty.
4. Dynamic Exposures and Unsettled Law :– This is
particularly significant for the risks and covers most likely
to generate contract certainty issues.
Underwriters perspective
on current situation
1. Undesirable :– The lack of pre agreed and standardized
wordings has many undesirable implications for insurers:




Inability to estimate costs and to risk manage
Increased legal risk to insurer
Adversarial relationships with clients
Operational Inefficiency
2. Unsurprising :– While not desirable, this situation is
unsurprising.
 Large risk insurance has always been very difficult area in
which to create standards
 There are natural trade offs for clients on this issue
Achieving Reasonable
Contract Certainty
1. Understand the Trade Offs :– For key covers, be willing
to trade price for continuity and service. Expect the
same from your insurers
2. Consistent Approach to Purchasing Coverage :–
Underwriters value consistency, it allows them to take
positions on risks they could not do for new clients.
3. Better Information :– Improve the quality of disclosure to
underwriters. Where non standard coverage is sought
be prepared to provide an economic analysis in support
of request.
RMG107
Contract Certainty –
An Imperative or an Impossible Dream
April 26th, 2006
8:00am – 9:30am