Reinsurance in Bermuda
September 11 issues for Bermuda reinsurers
For InBrief Magazine
By Rod S. Attride-Stirling & Angela Berry
The Bermuda Reinsurance Industry
The horrific events of September 11 have had a staggering effect on the global insurance market. It is estimated that claims in the tens of billion of dollars will be made, and the repercussions of the tragedy will be widely felt.
Moves were already afoot for the hardening of the insurance market with the occurrence of steady losses and capacity beginning to shrink. Then the September 11th losses, and the market responded. Within a matter of weeks after the World Trade Centre tragedy, new capital poured into the insurance market, and Bermuda, now unquestionably a major market player, has been catapulted towards prominence in the global insurance market.
To date, 10 new insurance companies have been established in Bermuda, providing in excess of $ 9 billion of capital. Bermuda is still seen as the jurisdiction of choice because of its well- developed and robust insurance and financial services infrastructure, and respected regulatory environment.
But is all the new capital good news for the industry? Some analysts wonder how long many of the new insurers will survive, and, at the recent World Insurance Forum held in Bermuda, the question was posed as to whether the new capital is a help or hindrance to the insurance market.
Industry leaders have said that there is room in the market for new competition and that the new players are not in just to take advantage of a hardening insurance market. There has been an exodus of capital, which needs to be replenished. For instance. Bermuda based Scandinavian Re and Overseas Partners Limited have both made the decision to stop writing new business. So, although the insurance industry has not seen withdrawal of capacity like early 1990s after Hurricane Andrew, new capital is generally seen as an overall good thing for the industry. History will no doubt tell the story.
Bermudaís innovation has been the catalyst for its growth and will be vital to its continued success, and in the meantime, like in the 1990s, buyers think it is a diverse and quality market place and are flocking to its shores.
September 11 Issues for Bermuda Reinsurers
Next we would like to discuss briefly some of the problems likely to be faced by reinsurers, not just in Bermuda, but internationally.
Swiss Re commenced a declaratory action in New York against Silverstein Properties asking for a determination that the attacks constituted a single occurrence. Silverstein Properties commenced actions against ACE and XL in the same Court arguing that it is not bound to arbitrate claims in London.
In February Silverstein announced that they had reached a settlement with ACE and XL in the amount of $365 Million, on the basis of one occurrence only. On the basis of other contracts, Silverstein claims against other insurers on the basis of multiple occurrences.
Some of the legal issues facing reinsurers are as follows:
BROKERS' DUTY
Brokers who were instructed to place cover incepting on a particular date are under a duty to use reasonable skill and care to obtain cover by that date and to report to their principals if they were experiencing difficulties.
BINDING CONTRACTS
The orthodox view in English law is that a contract of insurance is made at the point in time and at the place where the underwriter signs the slip thereby accepting the broker's offer. The slip is replaced by a signed policy wording. There may be specific circumstances in which underwriters are bound to issue a policy or sign a slip even though they had not done so prior to 11th September 2001.
How many Occurrences / EVENTS?
Unless the contractual context otherwise requires, an 'occurrence' is synonymous with an 'event', namely something which happens at a particular time, at a particular place, in a particular way. An 'originating cause' is wider than an 'occurrence'. None of these is equivalent to a single 'loss' or the happening of an insured peril.
The question whether several losses constitute one occurrence is to be determined objectively, in the context of the particular insured perils.
On the facts as they are presently understood, it appears that there was a causal connection and that the attack on the twin towers constituted a single occurrence or event as a matter of English (and Bermuda) law.
Follow the Fortunes
There is no automatic principle of 'follow the fortunes' applicable to reinsurance contracts governed by English or Bermuda law.
If a reinsured settles a claim, the reinsurer is bound by it if the reinsurance contract contains an effective 'follow the settlements' clause. An exception would be if the settlement was unbusinesslike. If there is no ìfollow the settlements' clause then the reinsured bears the burden of proving that the claim was covered.
It has been said that reinsurers will be bound to follow judgments against their insurers (see Commercial Union v. NRG). There are exceptions to this rule, and interestingly, a recent Bermuda arbitration declined to follow this decision of the UK Court of Appeal. |
