Leaders, Followers & Agreement Parties: Rights, obligations and problems under the Subscription Agreement. Andrew Schütte, Partner Hill Dickinson LLP

Transcription

1 Leaders, Followers & Agreement Parties: Rights, obligations and problems under the Subscription Agreement Andrew Schütte, Partner Hill Dickinson LLP

2 LMA Academy Disclaimer Whilst we endeavour to ensure that our learning materials are up-to-date, accurate and relevant to your needs, our materials are not intended to constitute advice for individual circumstances. The Lloyd s Market Association does not accept any responsibility or liability for your reliance on our materials and excludes all warranties, express or implied, relating to the accuracy, completeness, reliability or suitability of our materials to the maximum extent permitted by law.

3 Subscription Agreement Slip Leader Basis of Agreement to Contract Changes (GUA)

4 The General Underwriters Agreement Part 1 Alterations the Slip Leader may agree on behalf of all Underwriters, e.g. Restrictions in coverage Alterations which decrease monetary exposure Agreement of policy wording(s) in accordance with express provisions in the slip Part 2 Alterations the Slip Leader and Agreement Parties may, if unanimous, agree on behalf of all Underwriters Part 3 Alterations which may be agreed only by all Underwriters, e.g. Policy period extensions of over a month Extensions to geographical scope of the contract All Alterations the Slip Leader or any Agreement Party believes ought to be agreed by all Underwriters

5 Subscription Agreement Slip Leader Basis of Agreement to Contract Changes (GUA) Other Agreement Parties for Contract Changes for their own Proportion Other Agreement Parties for Part 2 GUA Changes Only

6 Basis of Claims Agreement Lloyd s Claim Scheme IUA Claims Agreement Practices The practices of any company(ies) electing to agree claims in respect of their own participation

7 Claims Agreement Parties: MRC v1.5, October 2012 i) For Lloyd s syndicates: The leading Lloyd's syndicate and, where required by the applicable Lloyd's Claims Scheme, the second Lloyd's syndicate and/or the Scheme Service Provider. The second Lloyd s Syndicate is JKL(1234). ii) Those companies acting in accordance with the IUA claims agreement practices, excepting those that may have opted out via iii below. iii) Those companies that have specifically elected to agree claims in respect of their own participation. iv) All other subscribing insurers that are not party to the Lloyd s Claims Scheme/IUA claims agreement practices, each in respect of their own participation.

8 Claims Agreement Parties: MRC v1.5, October 2012 i) For Lloyd s syndicates: The leading Lloyd's syndicate and, where required by the applicable Lloyd's Claims Scheme, the second Lloyd's syndicate and/or the Scheme Service Provider. The second Lloyd s Syndicate is JKL(1234). ii) Those companies acting in accordance with the IUA claims agreement practices, excepting those that may have opted out via iii below. iii)fornon-bureaucompaniesonly:theslipleaderonlyandtobebindingfor non-bureau(re)insurers

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11 Multiple slips Who is on the risk? Who is the leader? Who are followers? Are the slip wordings consistent? If not, which slip prevails?

12 Multiple slips: Gard v Glacier Re Glacier Re 40% No express law and jurisdiction London reinsurers 60% English law and jurisdiction

13 Why did English law and jurisdiction apply to Glacier Re? 2the reinsurance by Glacier of Gard was a participation by it as part of a London market placement and not a separate placement in the Swiss market2

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15 Do Followers have to follow? Under the subscription agreement If not all Claims Agreement Parties agree (BeazleyvAlAhleia)? Under other terms: leading u/w clauses/claims protocols Under the Lloyd s Claim Scheme Where there are multiple slips Ex gratia settlements

16 Tips for Followers Get the mud map if you possibly can Know your contractual rights e.g. for information, and use them Be vocal and raise concerns with the lead

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18 Leader s liability to Followers A contract of agency? Yes: The Leegas [1987]; Youell v Bland Welch [1990]; Roadworks(1952) Ltd v Charman [1994]; Roar MarinevBimehIranInsuranceCo [1998];UnumLifev Israel Phoenix Assurance [2002] No: Mander v Commercial Union [1998]; San Evans Maritime v Aigaion [2014]

19 What duties does Leader owe Followers? Any express duties set out in the contract, e.g. in any claims protocol; in LCS; or in IUA Claims Agreement Practices (10.1.3) Implied duties as the Followers agent, including to: act in good faith avoid any conflict of interest with the Followers not make secret commissions carry out Followers instructions with reasonable care and skill Duties to Followers are owed by the Lead on both underwriting and claims

20 Express Duties of Lloyd s Claim Scheme: Lead and Second Lead Determine the claim exercising the reasonable care of a reasonably competentmanagingagent (LCS 2010, paras 5 and 7) Gact in the best interest of all syndicates on whose behalf it acts and step aside if this is not possible (LCS 2010, para 9) Refer any ex gratia settlement, commutation or recission (other than in accordance with the terms of the insurance) to all followers (LCS 2010, para 17) 2 Provide followers with information on reserves and any dispute resolution proceedings, plus such further information as Lloyd s followers may reasonably require (LCS 2010, para 18 & 19)

21 Key aspects of Lloyd s Lead role Use best endeavours to agree a single Lloyd s Lead (and, on complex claims, a Second Lead) with any other syndicates within the same layer on substantially the same terms but on different slips (LCS 2010, para 2 (b)) Categorise claim as standard or complex (LCS 2010, paras 2 and 3) (For most claims) maintain records via ECF (Lloyd s 2010 Claim Scheme Process Guidelines v.7, 4.4) Ensure broker provides information and documents needed to adjust the claim (Guidelines 4.4, p.10) Identify Lead and Second Claims Agreement Parties on the slip and any related policies in the London market not shown on the slip (Guidelines 4.4, p.10) Conduct financial crime checks inc. anti-money-laundering/anti-corruption/sanctions checks (Guidelines 4.4, p.11) Coordinate market meetings and ensure market agreements are reflected on the claim file (Guidelines 4.5, p. 15) Set and revise reserve (Guidelines 4.6, p.16 & 17) Instruct professional advisors when needed and circulate their reports to Lloyd s followers (LCS 2010, paras 11 16) On complex claims, confer and agree with Second Lead on any action affecting followers rights (Guidelines 4.5, p.15) 2

22 Key aspects of Lloyd s Second Lead role Act on behalf of Lloyd s followers on complex claims (LCS 2010, para 7) Independently assess the claim (Guidelines 4.4, p.13) Endeavour to reach agreement with the Lead on all matters and present a united front to the broker (Guidelines 4,4 p. 13) Agree expert appointments with Lead (subject to rush appointments by Lead in exceptional circumstances) (Guidelines 4.7, p. 18) Question or object to the appointment of any professional advisor if it has reasonable grounds to do so (LCS 2010, para 12) Make available appropriate documentation of issues to followers and respond appropriately to requests from followers for information (Guidelines 4.4, p. 13) Confer and agree with Lead on any action affecting the followers rights (Guidelines 4.5, p.15) Review and confer on Lead s recommended reserve (Guidelines 4.6, p.17) 2

23 Limit to Leader s Liability?

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25 Lloyd s Lead s liability to Lloyd s Followers

26 Lloyd s Lead s liability to Lloyd s Followers LCS 2010, para 28: Lloyd s Lead/Second Lead s liability to Lloyd s Followers is limited to: 2m per claim 10m for all claims made in a year LCS 2010, para 32: limits of liability2shall not apply2 as2 prohibited by law e.g. fraud

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28 How to deal with conflicts of interest as a leader A true conflict? Step aside as lead? LCS clause 9 IUA CAPs Breach of contract with (re)insured? Settlement expressed not to bind the following market

29 Could an insured really sue for breach of Subscription Agreement? Contract Administrative and Advisory Sections: (the above is an optional heading) An administrative convenience? Severable agreement between insurers?

30 San Evans Maritime v Aigaion [2014] EWHC % London insurers No mention of any other slip 30% Aigaion Agreed to follow [London insurers] in claims... London insurers settled Expressly NOT in the capacity of a Leading Underwriter and did not bind any other insurer

31 San Evans Maritime v Aigaion [2014] EWHC % London insurers No mention of any other slip 30% Aigaion Agreed to follow [London insurers] in claims... London insurers settled Expressly NOT in the capacity of a Leading Underwriter and did not bind any other insurer

32 Summary Little guidance from case law on operation of subscription agreement Slip and wording need accurately to reflect parties intentions Multiple slips can create uncertainty Follower s obligation to follow depends on the wording Leader may be liable to followers for breach of fiduciary duty

33 Contact Andrew Schütte Hill Dickinson LLP Tel: +44(0)