On January 13, 2017, Federal Insurance Office (“FIO”) submitted to the US Congress a Covered Agreement negotiated with the EU addressing: (1) group supervision; (2) reinsurance; and (3) exchange of information between regulators. Once fully implemented, the Covered Agreement eliminates EU collateral and local presence requirements for US insurers operating in the EU, and eliminates US state collateral and local presence requirements for EU insurers operating in the US. The Treasury Department issued a Fact Sheet that explains the Covered Agreement.
At the moment, English law says that insurers and reinsurers are not under a positive duty to pay valid claims within a reasonable time. If an insurer/reinsurer delays in paying a claim, or fails to pay at all, an insured/reinsured can only claim the sums due under the policy and interest. An insured/reinsured cannot claim damages for late payment if it suffers additional losses by reason of a delay.
That position will change after 4 May 2017 when certain parts of the Enterprise Act 2016 introduce a new section 13A into the Insurance Act 2015.
An all-risk policy is meant to cover a loss triggered by any conceivable cause not excluded under the policy. While the burden is on the policyholder to establish a prima facie case for coverage, the policyholder need only show (1) the existence of an all-risk policy, (2) an insurable interest in the subject of the insurance contract, and (3) the fortuitous loss of the covered property. The burden to show fortuity is relatively light and when met, shifts the burden to the insurer to show that an exclusion applies or that the loss was not fortuitous.
Merriam-Webster defines “fortuitous” as “occurring by chance.” The question in a recent marine property damage case was whether an overload or ordinary wear and tear was the cause of the collapse of a mooring pile at a pier, which resulted in the loss. The steel pile was part of the southern inner breasting dolphin used for mooring operations. Got your attention?
When a loss occurs, one of the first things a policyholder should do is let its insurance company know about the loss. I know, some policyholders hesitate to report losses because it might cause their premiums to rise or because they don’t think they have any liability for the loss or because they think they can recover the loss through other means. While there may be some, albeit few, reasons to delay or withhold reporting a loss to an insurance company, the failure to timely advise an insurance company of the loss may result in a second loss — the loss of insurance protection.
In a recent case before the United States Court of Appeals for the Second Circuit, a policyholder found out the hard way what happens when you don’t report a loss to your insurance company in a timely manner.
When a policyholder, particularly a commercial policyholder, applies for insurance coverage, a key part of the application process is the disclosure of the policyholder’s relevant loss history. When an insurance company receives an application for insurance, that loss history is a critical part of the insurer’s underwriting process to determine whether it is willing to write an insurance policy, the terms and conditions of that insurance policy, and the premium it will charge for that insurance policy. The insurer relies on the insured and its broker to provide complete and accurate loss information. The failure to do so may result in a complete loss of coverage should a loss occur after a policy is issued based on incomplete loss information.
Many liability insurance policies exclude coverage for bodily injury or property damage arising out of structural alterations that involve changing the size of or moving buildings or other structures, new construction or demolition operations performed by or on behalf of the named insured. Construction insurance policies typically cover these risks, not general liability policies. A question that arose in a recent coverage dispute concerned whether replacing the roof of a structure during renovations of a building fell within the exclusion for injuries arising out of demolition operations. Continue Reading
Nearly every insurance policy has a clause that requires the insured to cooperate with the insurer in the investigation of the claim. Most insurance policies also provide that the insured should do everything necessary to secure, and do nothing to impair, the insurer’s subrogation rights. This is especially important when property damage is alleged. These policy provisions appear straightforward. Compliance should not be that difficult. That is until the insured is made an offer the insured can’t refuse.
Case law in nearly every state provides that the duty to defend is broader than the duty to indemnify. Typically courts look to the allegations in the complaint and compare those allegations to the coverage grants in the policy to determine if the allegations are sufficient to bring the claim within the possibility of coverage under the insurance policy. But what if no complaint is filed and the parties negotiate a settlement in advance of any lawsuit? Does the insurance carrier have to “defend” the insured and pay the costs associated with negotiating the settlement?
When an insurance company pays a loss on a claim, the insurance company often exercises its equitable right of subrogation to stand in the shoes of the insured and seek compensation from a third-party alleged to have caused the loss. In the property context, there may be an underlying contract that requires arbitration between the insured and its counterparty, which may provide the vehicle for the subrogation claim.
In a recent case, a New York federal court addressed a petition by an insurer to compel arbitration against a third-party under a transportation service agreement between the insured and that third party relevant to goods that were destroyed by a fire. Complicating the case was the insolvency of one of the third-party’s insurance carriers and state insurance law that precludes recovery from the insured of an insolvent insurer.
Exculpatory clauses appear in many contracts. They are often used to protect a contracting party from damages caused by its actions or the actions of others. For example, a hold harmless clause may protect one party from third-party suits caused by the alleged negligence of the other party.
Exculpatory clauses, like hold harmless or indemnification clauses, are somewhat unusual in a traditional reinsurance contract. But where the reinsurance contract is between a fronting company and a 100% reinsurer that is the real party in interest, the fronting cedent may want to insulate itself from any responsibility for the underlying claims by using an exculpatory clause. Continue Reading