Formation & Termination of insurance contract

8.1 Documents used to present risks to insurers.

Proposal forms - Think car insurance form or YACHT/PI insurance. (Filed by assured regarding asset)

Broker Presentation - What are Client/broker telling us?

1. Is it all "Material Risk" or basis for more questions.
2. Surveys
3. Data

Market Reform Contracts (SLIP):
Open market business - Broker to individual underwriter 1to1.
Line slips - lead underwriter approves binding of follow market.
Binders - Underwriters give delegated underwriting authority

If insurers accept the form without following up on any missing information, it will be very difficult for them to argue non-disclosure on the basis of that information at a later date in the process.

8.2 Legal Significance of Quotation & Renewals:

Step 1: Proposal

Broker request underwriters to consider their client. What lead terms can be offered?
Proposal from insurer as to T&C + Premium for given risk.
Balancing cover & Premium cost

Broker + Client must = disclosure of material facts

Step 2: Renewal

Market courtesy for brokers to request for renewal quote.
Market has changed over 12 months. MORE CAPACITY = Quote again.

Has CONTRACT been Loss-making?
Exiting that class of business?

1. Time element: Less cost to renew business (Underwriting already done)
2. Stable the portfolio of clients = reliable statistical data

No gaps in cover for clients
Insurers... Risk renewed late?

Step 3: Legal Implications

1. HAS to be TIME BOUND "2 weeks"
2. Client agrees past date NEED Permission
3. If client accepts. INSURER CANNOT BACK OUT
4. However, if terms are changed the offer lapses.

8.3 LM1 Duty of Fair presentation + Good Faith + Consequence of non-compliance

Duty of Fair presentation - Before entering into an insurance contract, the insured must make a fair presentation of the risk to the insurer.

• Disclose every material circumstance they know or ought to know, OR

• Give enough information to put a prudent insurer on notice that it needs to ask further questions

• Present information in a clear and accessible manner

• Ensure representations of fact are substantially correct

• Ensure representations of belief are made in good faith

• Deciding whether to take the risk, or

• Deciding on what terms (premium, exclusions, conditions)

Remedies for Breach of Fair Presentation - depend on the insurer’s state of mind and what they would have done if properly informed.

8.4 LM1 Legal principles essential to a valid contract.

Formation of the contract ?

Offer and Acceptance

contract comes into existence when one party makes an offer which the other accepts unconditionally.

Acceptance (party) does not alter any of the terms offered
VS
a contract has not been formed as not unconditionally accepted the offer.

Exchange of Consideration

as each person’s side of the bargain which supports the contract
Remember that the main reason for buying insurance is the insurers’ promise to pay valid claims in exchange for a premium.

Insurable Interest

Required to create a valid insurance contract...
ownership or exposure to liabilities to others under the law of negligence.

After Quotation. client selects preferred option.

1. Stamp
2. Scratches the slip with date
3. Share of the risk

Stated in slip
"LINES OF WHOLE" vs "LINES OF ORDER"
&
Oversubscribed - adjust "Written line" to "Signed Line"

If good risk = Underwriter can chose "LINE TO STAND" option

On risk - Once stamped, or electronically
Fitting boxes!
Broker's can't increase written line without permission.

Writing a risk after inception

1. ASK FOR LOSSES INBETWEEN PERIOD
2. ADD WNKORL to email

8.5 Purpose + Content of OPEN MRC

Basic PUROSE risk info

1. Summarise client's risk
2. UW indicate their written line
3. Document sent to client

3 types - Open market, Line slip, Binding authority (Binding authority MRC Chapter 9 - Delegated Underwriting)

SLIP - Risk Detail

Standard policy stuff at tops of slip: if soft market.
UMR, Type, Insured name & Address, PERIOD, Interest, Limits of liability, Insured Retention,

Conditions: LMA or LSW or NONSTANDARD WORDING
Loss Payee

Subjectivities = Time constraint placed on insured to provide additional "Material information" Before policy is active.

Premium + Payment Term - LSW3000 Clause = Premium not paid insurer can give 15 day notice before cancelling policy.

Don't forget Taxes.

Notice of cancellation

For Brokers - Broker Insurance Document (BID)

SLIP - Information additional Security details

Insurers liability
Order placing on this MRC = 50%?
ORDER SIZE: 50% of 100%? or WHOLE
1. Percentage of Whole
2. Percentage of Order
3. Part of Whole - financial terms
Signed down provision

SLIP - Subscription agreement

Who is? Slip & Bureau Leader
Basis of agreement to contract changes: GUA - READING INTO

Important players: Velonetic & Xchanging
Who is the underwriting claims lead?
Claims Administration, Fees, SDD
Bureaux arrangements: De-linking = risk sent to velonetic for database entry.

SLIP - Regulatory section

(local and international pay attention to Lloyds market)
Tracking Tax payable, country of origin, overseas broker, Lloyd's Brussels.
Surplus line broker - If direct business state who the surplus line broker (!).
PREMIUM CODE = R2, R4, T6
Commercial Large Risk (class)

SLIP - Broker Remuneration & Deductions

Retail VS Wholesale broker, Brokerage amount. And relationships with underwriters

Digitisation: MRC v3 & Core Data Record.
• Premium validation and settlement (Lloyd's and companies).
• Claims matching at first notification of loss ( Lloyd's and companies).
• Tax validation and reporting (Lloyd's only).
• Regulatory validation and reporting (Lloyd's only).

8.6 Placing process of open MRC & eMRC

Explain placement of risks within london

Models for conducting business in the London Market

1. Service company

Alternative to sourcing deals - delegated underwriting Chapter 9 - Delegated Underwriting
Backed by managing agent/syndicates

2. Branch offices:

Write business in local market with Branch. Or via Lloyds regulatory permission centrally

3. Services (cross boarder) and establishment (local office) business

Lloyds Brussels:
Each risk written is wholly reinsured back into the Lloyds syndicates.
Underwriter stamp looks different.

4. Delegates Underwriting

How Endt are broked on a traditional & e bases... LM2 - C7 - UW Function

8.7 Ops of GUA why? how?

Endorsements are broked

Changes to the slip/contract. Establish process for AGREEING changes.
Document to present changes to underwriter & client informed.

GUA

An agreement between insurers subscribing to a risk that certain endorsements need to only be agreed by a subset of those insurers.

Purpose:

1. Agreement between all underwriters on a given MRC will deal with contract changes. (Mini contract of delegation)
2. Clarify AUTHORITY of leader and identified underwriters to agree changes
3. Tailor to each COB
4. Ensure all underwriters are notified of changes even not involved

These schedules are divided into three parts, each indicating what type of changes can be agreed by a certain combination of the insurers on the risk, as follows:

Part 1 – slip leader only (note this is not bureau leaders).
1. Anything that the slip says can be changed by leader only
2. Typo
3. Any changes reducing monetary exposure (eg turbine decommissioned)
4. Restriction in coverage (coverholder is restricted from extending cover beyond the scope agreed in the delegated authority)
5. Return premium if provided for in the slip (TSI decrease or LC)
6. wording amendments require agreement of the slip leader only

Part 2 – slip leader plus agreement parties.
1. Anything provided for in MRC to be agreed by leader and agreement parties
1. increase in deductible to reduce premium
2. Wording amendment if stated as leader and agreement parties.
3. claims notification period
2. Anything that does not fall into Part 1 or 3
1. Insured changes O&M contractor
2. Risk survey frequency (SSE dogger bank Monthly updates)

Part 3 – all underwriters.
1. Anything that MRC says has to be agreed by all underwriters. (Agg limit)
2. Anything that slip leader or agreement parties feel should be agreed by all underwriters. (BESS addition to solar farm)
3. Changes to geographical scope. (UK policy need for Ireland assets)
4. Policy Extensions in Excess of 30 Days (3 month extension)
5. Changes to Jurisdiction of the Contract (English law to German law)
6. Backdating of the Policy Period

1. Overall leader: broker states terms that the leader has set.
2. Slip leader: London market lead
3. Bureau leader: First Lloyds leader

Key terms and conditions used in policy wordings

8.8 How underwriters know if ON RISK

commitment to the contract vs On risk

8.9 Sections of Insurance Policy

Varies components of a policy:
Slip: risk details, security detail/information, subscription agreement, regulator, brokerage,

Sources of wordings and clauses

insurers operating in the London Market choose to use another market’s policy wordings, as that other market has in fact led the risk, or is writing the primary layer when London is providing the excess layer coverage

• English law and practice.
• Insurable interest clause.
• Sue and labour clause.
• War and nuclear exclusions.

8.10 Warranties, conditions and Exclusion

What type of Conditions precedents are remedies for breach:

Condition Precedent (CP) to liability (pre-requisite)

1. Results in a total loss of coverage for that specific claim
2. Is there an insurable interest
   What is the intention and effect of wording!

Exclusion - why & also buy backs if a peril is excluded

Risk that the insurer will not cover under a particular policy
What types of exclusions come up most frequently?

What is Warranties & breaches?

Insured reduces ambiguity Stating something will or will not be done or facts exists or does not exist.
What types of warranties come up most frequently.

POWER TO COSUMERS - Under the Insurance Act 2015, if there is a breach of warranty the policy is suspended until the breach is remedied and the suspension lifts automatically.

"insurer is considering the particular perils and hazards of any risk, they might want to put controls around matters such as the use of security devices, the safe use of machinery or how many people are on site at any point in time. These are exactly the types of conditions affected by the Act."
The "Burden of Proof"

t

8.11 Contract Certainty

Regulatory reequipments

Benefits of contract certainty for all parties

all parties to a contract knowing exactly what is going on at the point the contract comes into force

8.12 Premium Processing

Debit notes

London Premium Advice Note (LPAN)

Velonetic/Xchanging Ins-sure service works

Broker responsible for payment of premium under marine insurance act 1906

Changes in premium associated with ADDITIONAL documentations.

8.13 Termination of insurance contract

CANCELLATION

1. By Insured = commercial reason, policy wording + Downgrade of insurer
2. By Insurer = Material change... Should Marine hull be sold
   or SERVED PURPOSE
3. Fulfilment = Single Vehicle damage, policy pays out contractually obligated (loss of insurable interest)
4. Period expiry

Unexpected Termination

BREACH of duty of fair presentation:

If premium is under paid or risk change due to material info not disclosed. CLAIMS are reduced by same percentage.

Breach of Warranty: Off Risk for certain period

Fraud: Legitimate claim EXAGGERATED. or Fraud in relation to a breach of the duty of fair presentation. Insurers can keep premium

8.14 Conflict of interest may arise & managed