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7/8 M97/February 2018 Reinsurance

• A premium payment condition or warranty to encourage prompt payment.
Insurance Act 2015 Imposed irrespective of the original premium payment terms, a warranty will typically provide that
covered in
chapter 8, the reinsurance premium is paid and received by the reinsurer by a particular date otherwise cover
section C1 will cease ab initio (from inception). However, unless the warranty has been amended to exclude
the application of the Insurance Act 2015, the impact of non-payment is likely to exclude any loss
which occurred before the breach was remedied, that is prior to the premium being paid. On the
other hand, a premium payment condition will usually provide cover up to the deadline date, and
for its cancellation or termination thereafter.

For example:

It is a condition of this contract of reinsurance that the premium due at inception must be paid to and
received by Reinsurers on or before midnight on [ ]. If this condition is not complied with, then this
contract of reinsurance shall terminate on the above date with the Reinsured hereby agreeing to pay
premium calculated at not less than pro rata temporis [(by time)].

A1E Law and jurisdiction

To avoid unnecessary disputes, it is common practice for all facultative wordings to include a choice of
Common practice to
include a choice of law and jurisdiction clause, setting out which law governs the particular contract and where any
law and jurisdiction disputes should be heard. As a distinct contract, it cannot be assumed that, if omitted and necessarily
clause
implied by law into the reinsurance contract, such terms will mirror those in the original policy and
provide back-to-back cover.
As with insurance wordings, facultative and treaty wordings should include a law and jurisdiction clause,
which specifies the law that governs the reinsurance contract and the courts that have the exclusive
right to hear a dispute between the reinsured and the reinsurer.
Where both the reinsurer and reinsured are permanently based in the UK and the contract is effected in
London, English law and its jurisdiction will usually apply. That cannot be taken for granted where one or
both of the contracting parties has significant contacts outside of the UK, although the presumption is
that if the contract is effected in London, e.g. the reinsurance of an overseas reinsured placed in London, Reference copy for CII Face to Face Training
the jurisdiction of the English courts will prevail. However, the law governing the subject matter of the
reinsurance would usually be that applicable to original claims.
Therefore, where an English court has jurisdiction over a dispute between the reinsured and reinsurer
and the dispute concerns a claim on the original insurance governed by a foreign law in a foreign
7 jurisdiction, it would be the law of the foreign jurisdiction that would apply to that claim. However, the
Chapter with the situation where the law governing the reinsurance contract is English and the law governing the
House of Lords’ decision in WASA v. Lexington (2009) should be noted in this context. This case dealt
original insurance is a foreign jurisdiction (in this case the State of Washington). Their Lordships found
that where the reinsurance contract does not explicitly bind the reinsurers to the law governing the
original policy, the reinsurance contract may not be held to follow the original settlement, where such a
settlement is, by English law, clearly outside the terms of the contract of reinsurance.
In order to avoid disputes, it is common for the governing law and the court jurisdiction to be specified
in the reinsurance contract wording. This is done by choice of law and exclusive jurisdiction clauses. The
governing law may be specified as a legal system other than English law; a German reinsured may insist
on German law and a French reinsured may insist on French law. It is not unusual for a US domiciled
reinsured to insist upon the law of the state of its domicile in the USA.
Extraordinarily, the parties may agree for courts of a particular jurisdiction to apply a foreign law, adding
an extra layer of complexity and expense to claims handling and to any legal proceedings. The main
reason would typically be that the existence (or absence) of particular provisions – for example,
avoidance for innocent non-disclosure – was unacceptable to one of the parties.
Reinforce
Before you move on, make sure that you understand how the previous standard clauses work to distinguish between
the terms and conditions of the original insurance contract and those of the reinsurance.