Chapter 3: Terms and Conditions Flashcards
What is a standard form?
Complete wording, which is given a specific title or reference
What is a manuscript (or bespoke) contract wording
Individually drafted for specific risk
Are schedules incorporated within contract wordings?
Yes
What are schedules?
Shows specific details of risk insured
What should be considered when drafting or checking a contract?
Date
Any reference to proposal form attached
Proposal form competed?
On renewal - has the updates proposal correct?
Is a proposal form used for business insurance contracts?
No
What was common practice with exclusions?
Exclude losses as a direct or indirect result of war. Convention no longer the case but remains except for Marine
Why do regions have regulatory requirements?
To protect local buyer, for fiscal/public policy
What may regulatory requirements apply in relation to?
The type of document, market sector, classes of business, model wordings, law ramifications, presentation and language
Name Lloyd’s web based system that allows brokers and managing agents to access detailed manuals listing requirements by individual territories
Crystal
Are words used in a contract wording given their common everyday meaning
Yes, unless contract wording states to the contrary or there is a technical meaning that is widely understood
Why would the definition of a term given in a contract prevail over any everdyay/common meaning?
Presumed it has been defined in accordance with the intention of both parties. Greater certainty to contract
What is an insuring clause?
States in the cover that has been agreed The indemnity Payment of Premium Temporal Scope Financial Scope Territorial Scope Jurisdiction Scope
What is the preamble/recital clause?
Demonstrate insured has provided consideration for the insurance cover
What uses a provisional period?
Builders Risk clauses
What does Jurisdictional scope mean
How a policy will respond to claims bought against an insured party in certain territories.
What is basis of attachment?
Coverage trigger
What is a notification extension clause?
Provision for insured to notify insurer of the circumstance or loss during the policy period
Policy is triggered by the accident rather than the loss is called
Causation basis
How to decide a trigger?
- Class of Insurance
- Country where business is being written
- Potential tail of risk
Which trigger continues to provide cover when the insurer ceases to buy insurance?
Loss occurring policy
When is there a gap in cover when changing triggers?
Claims made to a loss occurring basis
Why do insurers include exclusions?
- Do not wish to cover risks likely to be higher than acceptable
- Not accidental (i.e. wear and tear)
- Risk covered by a different type of policy
- Risk insurers are unable to insure
- risk that are insurable under Gov. Scheme
What are the limitations of exclusions?
Precise wording of exclusion
May only apply to certain coverages
What is a buy-back/ write back?
A way to limit scope. Apply total exclusion and state what will not apply in certain situations.
What is the effect of exclusions on the burden of proof?
Insurer to prove that the loss fails within the exclusion
Where is the sum insured/limit of indemnity presented in an MRC?
Risk details
A commercial insurance contract will typically include a cancellation clause that allows the:
insured or the insurer to cancel the policy independent of each other.
Which contract of insurance is a schedule unnecessary
Insurance provided by syndicates at Lloyd’s where an MRC is used instead.
What is the position if there is a material change to the insured risk during the policy term?
The insured is under a general ongoing duty to inform the insurer.
What are the reasons for an excess/deductible?
- Economically makes sense
- Insurer may not want to incur administrative expenses
- Insured may exercise better risk management
Is it mandatory to reference whether an excess/deductible applies in an MRC?
Yes
What is an excess?
Maximum amount payable is the full limit only when the insured has paid the first amount of loss
What is a deductible?
Maximum amount payable is the limit less the deductible
Define Coinsurance?
Percentage of the total loss that is covered.
The excess/deductible provision in an insurance contract should not fail to address three issues. What are they?
- The currency
- The amount
- How the amount should be applied
What is an inner deductible / reduced excess amount?
Incurred by the insured in respect of losses after exhaustion of the aggregate excess/deductible
What must be balanced when checking a loss notification provision?
Practical needs and capabilities of the insured
Requirements of the insurer
What should a LOSS NOTIFICATION PROVISION cover?
When; what; who and How
Why is is important that a notification of the occurrence reaches the insurer in a timely manner?
- Allow insurers to adequate opportunity to inspect/adjust loss
- Meeting any court deadlines
- Meeting limitation periods in respect to subrogation rights
- Insurer to maintain accurate records
What notification is important in claims made policies and why?
Notifying insurers of circumstances that may lead to a loss under the policy.
Why - Insurers may have to provide cover for reported circumstances after expiration of the claim
What should a LOSS NOTIFICATION CLAUSE cover?
What information or documentation the insurer must send to the reinsurer
A loss notification clause should also specify the manner in which written notice is sent, is this true/
Yes
Should the claims handling clause state whether the insurer/insurer should defend a claim against the insured?
Yes, in third party liability
What is non admission?
In third party liability insurance stating that the insured shall not admit liability without prior consent of the insurers
What is a due diligence/reasonable precautions clause?
Insured must take steps to minimise loss from happening or mitigate loss whilst it is taking place.
What is under the duty to notify material changes?
- Disclose every material which insurer ought to know
- provide evidence for a prudent insurer to make further enquiries
- disclose information clearly
- ensure fact / good fait in material representation
Can insurers contract out of fraudulent claims where the transparency requirements have been satisfied in relation to the terms under the IA 2015?
Yes
Parties agree to have their dispute resolved by a third party is called…
Arbitration
What should an arbitration clause state?
Mechanism for starting process
Seat of arbitration (identifiable law district)
Choice of law
What are the three grounds for challenging an award
- Lack of jurisdiction
- Unfair procedure
- Public Policy
What is an endorsement, addendum or memorandum?
Document/clause added to a commercial insurance wording that changes one or more of the provisions contained in the contract wording
What is the common sign off for an endorsement?
‘all other terms and conditions of the policy remain unchanged’
What is Exchange?
Messaging service which enables brokers, underwriters and IT suppliers to send and receive information between multiple parties
What are the practical considerations when drafting and reviewing commercial (re)insurance contract wordings?
Existing Wording New Manuscript Wording Insurer Wording Package wordings Facility Wordings Market Capacity Wordings Territorial Wordings
When should the wording be reviewed and prepared?
6 months prior to inception or renewal
Transparency and and integrity are…
necessary to ease the process of agreeing the wording
The cancellation clause should describe who can cancel the policy and how, and what happens to the premium if it is cancelled. True or False?
True
Name the responsibilities that a claims handling clause should provide for
- Insurers right to assistance and co-operation
- Insurers right to associate with other insurers
- Insurer/insureds right to handle claims
- Insurer/insureds right to appoint a loss adjuster
- Insurers right to recourse
- insurers right/duty to defend claims and suits
- insurers/insureds duty to pay other costs
Where can causation basis’ be found?
UK Employers’ liability policies
Where can Claims made policies be found?
Third Party and Professional Indemnity Policies
What is a Retroactive date?
How claims made policies are usually restricted to exclude events or losses which took place prior to a certain date
What is the extended reported clause?
makes allowance for the insured to report to insurers claims that have been made against them during a period after expiry/non-renewal
What does INBR stand for?
Incurred but not reported
What is IBNR?
Claims that take a long time to manifest themselves
What trigger should be used for long tail risks?
Claims made
What was a requirement following HLB Kidsons V. Lloyd’s Underwriters (200&)
In a claims made policy - a claim that is made in reasonable time is likely to be constructed as a condition precedent even if not expressly implied
What is a policy of exception?
Exclusions qualify the cover as a whole - common on all risk policies
What is a policy of inclusion?
Exclusions only qualify the operation of a certain peril
What is a fundamental difference between a policy of exception and a policy of inclusion?
The burden of proof and where this lies in the event of a dispute with the insurer.
Define loss occurring basis
Trigger is the actual loss insured against occurring during the period of the policy
Define causation basis
The accident or event not loss, triggers the policy
Define Claims made basis
Claim made against the insured by the third party will trigger the policy
Is the Claims condition likely to be constructed as precedent to liability?
Yes
What is the difference between an Excess and deductible?
Excess - full limit is payable ‘in excess of’ the excess
Deductible - The amount payable is is the limit with the deductible deducted
What points should be considered when drafting or checking a cancellation clause?
- Do both parties have the right to cancel
- Are specific reasons for cancellation set out
- How is the cancellation to be effected
- Premium returnable?
A large supermarket chain experiences a high number of low severity claims arising from customers
slipping in their UK stores. It has an arrangement with its insurer that it can handle smaller claims
below a certain value in-house. What method for notifying these claims, if any, would be most
appropriate?
By bordereaux at regular intervals.
What is the usual effect of triggering a fraudulent claims clause in a commercial insurance contract?
All benefit under the contract for the fraudulent claim will be forfeited.
If the parties to an insurance contract want to select who will make a ruling on any dispute arising
under the contract, which method of dispute resolution should they insert into the contract?
Arbitration.
An endorsement which starts with the wording ‘Notwithstanding anything to the contrary herein…’
and ends with ‘all other terms and conditions remain unchanged’ is most likely to have been
drafted with the intention of
varying one or more clauses in the contract wording.
Which type of insurance policy is an all risks policy?
Policy of exception.
How is the limit of liability most likely to be stated by an insurer that wants to restrict its exposure to a specific peril?
A probable maximum loss limit.
When does an insurer pay claims under an insurance policy that is subject to an aggregate excess?
Only where a single loss or a combination of losses exceed the monetary amount during the policy period.
In what circumstances, if any, can an appeal be successfully brought against an arbitration decision?
Only where the appeal is based on a point of law.
