Chapter 2 - The Role of Policy Wording

Question 1

What is a joint insurance policy?

Answer 1

Two or more parties are insured and they have the same interests

Question 2

What is a composite policy?

Answer 2

Two or more parties involved but interests are different

Question 3

When does an insured have unrestricted access to a contract?

Answer 3

When they do not require the main insured to claim on the policy also

Question 4

Why is clarity on who has obligation important?

Answer 4

If not clear, it may be breached unintentionally

Question 5

How would a breach of policy by an insured affect other insureds in a joint policy?

Answer 5

Contract is indivisible therefore all insureds treated equally

Question 6

How would a breach of policy by an insured affect other insureds in a composite policy?

Answer 6

Other insureds do not suffer invalidation for one insured’s breach

Question 7

What does the Third Party (Rights against Insurers) Act 2010 make possible?

Answer 7

Provides rights to claim on an insolvent insureds insurance can be transferred to injured third party

Question 8

What does the Rights of Third Parties Act 1999 state?

Answer 8

Third parties may claim on a contract if the contract is enforcable by a third party and may appear to confer a benefit on the third party (intentionally)

Question 9

What is consensus ad idem?

Answer 9

Both parties at the time the contract was entered into are in complete agreement

Question 10

What is contract certainty?

Answer 10

complete and final agreement of all terms by both parties at the time they enter into the contract

Question 11

What are the contract certainty code of practices for a single insurer?

Answer 11

1. when entering into contract all terms are clear by the time the offer is made / accepted
2. after entering into contract documentation provided to insured promptly
3. demonstrate achievement of 1 and 2
4. contract changes need to be certain and documented promptly

Question 12

What are the contract certainty code of practices for multiple insurers?

Answer 12

1. when entering contract, must include an agreed basis outlining each insurer’s participation
2. after entering, final participation must be provided to each insurer promptly
3. insurer and broker have responsibility to resolve exceptions to 1 and 2 as soon as practical and without undue delay

Question 13

What are the benefits of a standardised MRC?

Answer 13

• mandatory headings make sure key data not missed
• guidance for what should go in each section avialble
• felxibility to add extra sections for lob specifics
• data will always be in the same place in document
• evidence of insurance for the client

Question 14

What is a service of suit clause?

Answer 14

Compulsory wording in US insurance contracts stating insurer’s are prepared to be sued in cour

Question 15

What are side letters?

Answer 15

Used to include matters deemed sensitive where one party does not want information shared with wider parties which may have access to contractual documentation

Question 16

How else can side letters be used?

Answer 16

• clarification: to confirm additional detail not known when main document finalised or to clarify certain points
• variation: to deal with last minute changes instead of changing the whole document

Question 17

What is reverse engineering for wordings?

Answer 17

Direct insurance is a middle man, essentially just between insured and reinsurer but direct there for regulatory

Question 18

Define a consumer of insurance

Answer 18

Someone buying insurance other than for their trade, business or profession

Question 19

What does the Consumer Rights Act 2015 say?

Answer 19

Contract term is transparent if it is in plain and intelligible language.

If a term in a consumer contract could have other meanings, meaning most favourable to consumer takes precedence

Language should be clear, fair, and not misleading

Question 20

Why would insurers use non-London Market wordings?

Answer 20

• model wording from overseas is wider and customer wants that
• placement lead by non-London insurer

Question 21

What are issues to look out for if using overseas wordings?

Answer 21

• interpretation (e.g. which country’s law it refers to)

- legality of clauses

Question 22

What are the two types of meanings of a term in a contract?

Answer 22

ordinary and technical / legal meaning

Question 23

What is ejusdem generis?

Answer 23

“of the same kind” - what else would reasonably be contained in a list that ends with etc

Question 24

What is contra proferentum?

Answer 24

Ambiguities will be interpreted or construed against the drafter

Question 25

Who is the drafter of the slip if a broker puts the document together?

Answer 25

The insurer as they are given the opportunity to read and detect any ambiguities

Question 26

How are inconsistencies in a contract dealt with?

Answer 26

If additional clause conflicts with unamended wording, additional claise will be taken as the intent

Question 27

What does a wording specialist do?

Answer 27

Review contracts to see that they are clear, fair, non-misleading, cohesive and consistent

Question 28

What are the four main objectives of solvency II?

Answer 28

• deeper integration of the EU insurance market
• policyholder protection
• increased competitiveness
• better regulation