XIIIth AIDA WORLD CONGRESS PARIS 2010

Reinsurance Working Party

“Conflicts of interest faced by reinsurance brokers: the modern role of the broker and

his duties.”

Dr Kyriaki NOUSSIADr Kyriaki NOUSSIA

LL.M, Ph.DLL.M, Ph.D

1. Introduction1. Introduction

Insurance, Reinsurance law

Broker - agent of assured or reinsured

- owes insured/reinsured

fiduciary and contractual duties.

1. Introduction (cont.)1. Introduction (cont.)

HIH Casualty & Gen. Ins. Ltd v JLT Risk HIH Casualty & Gen. Ins. Ltd v JLT Risk Solutions Ltd Solutions Ltd [2006]Lloyd’s Rep. I.R. 493[2006]Lloyd’s Rep. I.R. 493

brokers who had expressly undertaken brokers who had expressly undertaken to forward to their reinsured management to forward to their reinsured management

reports of a third party reports of a third party also owed a duty to alert and advise the also owed a duty to alert and advise the

reinsured reinsured of any breaches of warranty by the assured.of any breaches of warranty by the assured.

1. Introduction (Ctd.)1. Introduction (Ctd.)

HIH Casualty & Gen. Ins. Ltd v JLT Risk Solutions Ltd HIH Casualty & Gen. Ins. Ltd v JLT Risk Solutions Ltd [2006]Lloyd’s Rep. I.R. 493[2006]Lloyd’s Rep. I.R. 493

sparked concerns across insurance & reinsurance world

encompassed presumption post-placement duty to alert insured/reinsuredas to any coverage concerns

applies not only in unusual circumstances.

1. 1. Introduction (Ctd.) Introduction (Ctd.)

HIH Casualty & Gen. Ins. Ltd v JLT Risk HIH Casualty & Gen. Ins. Ltd v JLT Risk Solutions Ltd Solutions Ltd [2006]Lloyd’s Rep. I.R. 493[2006]Lloyd’s Rep. I.R. 493

Back-to-back context,

Brokers - should discuss with insured

before sending information to

reinsured,

- be alive to potential for conflict

- seek advice if concerned.

1. 1. Introduction (Ctd.) Introduction (Ctd.)

SimilarlySimilarly

Broker Broker = = not only agent of insurednot only agent of insured

also agent of insurer also agent of insurer for certain for certain

duties. duties.

ThusThus

> > agency relationship of double character agency relationship of double character

(broker - performs functions also for (broker - performs functions also for

insurer)insurer)

2. 2. Ongoing Information Duty of the BrokerOngoing Information Duty of the Broker

Rule Rule

- responsibility to advise on operation of policy- responsibility to advise on operation of policy

Sarginson v MoultonSarginson v Moulton (1942)73 Ll.L.R. 104; (1942)73 Ll.L.R. 104; Strong & Pearl v Allison & CoStrong & Pearl v Allison & Co (1926) 25 Ll.L.R. (1926) 25 Ll.L.R. 504;504; King v Chambers & Newman King v Chambers & Newman [1963]2 Lloyd’s Rep. [1963]2 Lloyd’s Rep. 130;130; Victor Melik & Co Ltd v Norw. Un. Fire Ins. Soc. Victor Melik & Co Ltd v Norw. Un. Fire Ins. Soc. [1980] 1 Lloyd’s Rep.523[1980] 1 Lloyd’s Rep.523

2. 2. Ongoing Information Duty of the Broker Ongoing Information Duty of the Broker (Ctd).(Ctd).

Rule (cont.)Rule (cont.)

- no general duty to monitor activities or - no general duty to monitor activities or insurance needs of assured while policy insurance needs of assured while policy subsists subsists

BUTBUT - duty of care may be owed - duty of care may be owed HIH Casualty & General Ins. Ltd v JLT Risk HIH Casualty & General Ins. Ltd v JLT Risk

Solutions Ltd Solutions Ltd [2006]Lloyd’s Rep. I.R. 493 [2006]Lloyd’s Rep. I.R. 493

3. 3. HIH Casualty & General Ins. Ltd v JLT HIH Casualty & General Ins. Ltd v JLT Risk Solutions Ltd.Risk Solutions Ltd.

HeldHeld

First instanceFirst instance

Breach of continuing post-placement duty Breach of continuing post-placement duty

Continuing post-placement duty Continuing post-placement duty

> to alert HIH to any potential issues of coverage > to alert HIH to any potential issues of coverage

Not enough > for JLT to ONLY to pass on risk Not enough > for JLT to ONLY to pass on risk

management reportsmanagement reports

3. 3. HIH Casualty & General Ins. Ltd v JLT HIH Casualty & General Ins. Ltd v JLT Risk Solutions Ltd (Ctd).Risk Solutions Ltd (Ctd).

Court of Appeal

- upheld the Commercial Court judgment upheld the Commercial Court judgment in all respectsin all respects

- whether broker owed duty of care to whether broker owed duty of care to insured post-placement, & scope of duty, insured post-placement, & scope of duty, had to depend on the circumstances of had to depend on the circumstances of the casethe case

3. 3. HIH Casualty & General Ins. Ltd v JLT HIH Casualty & General Ins. Ltd v JLT Risk Solutions Ltd (Ctd.) Risk Solutions Ltd (Ctd.)

Commentary (Ctd).Commentary (Ctd).

Arguable:Arguable: - - post-placement dutypost-placement duty to alert insured to alert insured re re coverage issuescoverage issues

applies applies not only in unusual circumstances,not only in unusual circumstances,

BUT BUT across the boardacross the board

4. 4. Obligations of Broker to the InsurerObligations of Broker to the Insurer

Agency dutyAgency duty- owed owed by broker to insurer by broker to insurer - entailedentailed in functions brokers perform in functions brokers perform - unquestionable unquestionable a)a) if broker if broker does not bring conflict of interestdoes not bring conflict of interestb)b) if assuredif assured has given full informed consent has given full informed consent to broker acting in such functionto broker acting in such function

Excess Life Ass. Co Ltd v Fireman’s Fund Ins. Co of Newark NJ Excess Life Ass. Co Ltd v Fireman’s Fund Ins. Co of Newark NJ [1982] 2 Lloyd’s Rep. 599s[1982] 2 Lloyd’s Rep. 599s

Pryke v. Gibbs Hartley CooperPryke v. Gibbs Hartley Cooper [1991]1 Lloyd’s Rep. 602.[1991]1 Lloyd’s Rep. 602.

4. 4. Obligations of Broker to the InsurerObligations of Broker to the Insurer

Where insurance broker:Where insurance broker:

duty to report facts to underwriter duty to report facts to underwriter failure to report = detrimentalfailure to report = detrimental

4. 4. Obligations of Broker to the InsurerObligations of Broker to the Insurer

Practical operation of London Ins. Practical operation of London Ins. MarketMarket

Brokers Brokers > carry out functions for both> carry out functions for both

parties of ins. transactionparties of ins. transaction

[The Zephyr] [The Zephyr] [1984]1 Lloyd’s Rep. 58[1984]1 Lloyd’s Rep. 58

5. 5. Other JurisdictionsOther Jurisdictions

Continental jurisdictions (Greece, Germany) Continental jurisdictions (Greece, Germany)

Post-contractual information duties Post-contractual information duties > > regulated in complex of insurance contract lawregulated in complex of insurance contract law. .

GermanyGermany - s.6 § 1.1. Regulation on Duties of Information - s.6 § 1.1. Regulation on Duties of Information Relating to Insurance ContractsRelating to Insurance Contracts

GreeceGreece- 1997 Insurance Law, Civ. Code, art. 224 et seq.- 1997 Insurance Law, Civ. Code, art. 224 et seq.

5. 5. Other Jurisdictions (Ctd).Other Jurisdictions (Ctd).

German Law German Law - broker has information duty - broker has information duty pre-contractuallypre-contractually

- bears post-placement information - bears post-placement information dutyduty

- bears all duties that any representative would - bears all duties that any representative would have under general contract law have under general contract law ((§ 181 BGB, §19 VVG).§ 181 BGB, §19 VVG).

Also Also – duty to inform the insurer of any alteration in risk’s – duty to inform the insurer of any alteration in risk’s nature nature

- obligation to collect the premium and payments on - obligation to collect the premium and payments on behalf of the insured.behalf of the insured.

5. 5. Other Jurisdictions (Ctd).Other Jurisdictions (Ctd).

Greek Law Greek Law

Insurer- broker relations:Insurer- broker relations:regulated mainly regulated mainly by:by:

- Law 1569/1985Law 1569/1985- Minister’s Decision (Min. for Minister’s Decision (Min. for

Commerce)K3/1377/18-2-1994Commerce)K3/1377/18-2-1994- Presidential Decree 190/2006.Presidential Decree 190/2006.

5. 5. Other Jurisdictions (Ctd).Other Jurisdictions (Ctd).

Most usual obligation Most usual obligation - de legede lege:: payment of commission to broker by insurer for conclusion of payment of commission to broker by insurer for conclusion of task of effecting insurance contract task of effecting insurance contract

Also usual: Also usual: - by special separate contractual agreement, by special separate contractual agreement,

other obligations are being agreedother obligations are being agreed

(e.g. collection of premium by broker on behalf of insurer, (e.g. collection of premium by broker on behalf of insurer, exact insurance risks undertaken by him & resulting duty of care owed to exact insurance risks undertaken by him & resulting duty of care owed to

insurer way and amount of damages (may be) owed for breach of duty insurer way and amount of damages (may be) owed for breach of duty the way agreed for broker to give account for actions)the way agreed for broker to give account for actions)

6. 6. Conclusions.Conclusions.

Arguable Arguable if post-placement duty if post-placement duty to alert insured to alert insured (coverage issues)(coverage issues)applies always applies always in all circumstancesin all circumstances

6. 6. Conclusions (Ctd).Conclusions (Ctd).

Re back-to-back insurance: Re back-to-back insurance:

brokers to discuss matter with insuredbrokers to discuss matter with insured before sending information to reinsuredbefore sending information to reinsured

6. 6. Conclusions (Ctd).Conclusions (Ctd).

Traditional broker’s role Traditional broker’s role - agent of assured - agent of assured

ExceptionException - brokers have also obligations - brokers have also obligations

vis-à-vis the insurervis-à-vis the insurer

XIIIth AIDA WORLD CONGRESS PARIS 2010

Reinsurance Working Party

“Conflicts of interest faced by reinsurance brokers: the modern role of the broker and his

duties.”

Thank you for your attention !Thank you for your attention !