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Chapter 7 Contract wordings 7/31

Basis of reinstatement
If reinstatement is subject to the payment of additional premium, the amount and basis of that payment
Amount and basis of
must be set out. The basis of the premium payment is either pro rata to amount and 100% as to time or that payment must be
pro rata to amount and pro rata to time. set out
If the basis of reinstatement is pro rata to amount and 100% to time, the additional premium is
calculated on the amount of cover reinstated in proportion to the limit of cover and irrespective of the
date of loss. If the basis is pro rata to amount and pro rata to time, the premium is pro-rated both to the
amount of cover reinstated and to the period of the reinstatement, that is, from the date of loss until the
expiry of the period of reinsurance.

D6 Claims clauses
These clauses address:

• the notification (or reporting or advice) of losses and the provision of related information to
reinsurers; and
• reinsurers’ rights and obligations in relation to those losses.
In this context, ‘claim’ is used interchangeably with ‘loss’, unless otherwise stated.

D6A Notification of claims (or loss)

This clause states when notice is to be given by the reinsured to the reinsurer in the event of a loss or
States when notice is
losses. Typically, it will also set out what information is to be provided about the loss(es). to be given by the
reinsured to the
As to when notice should be given, some clauses may be drawn quite simply, requiring, for example, no reinsurer
more than prompt notice. Other clauses may require notice when the reinsured has reason to believe
that a loss(es) may exceed the deductible or a high proportion of it. On the other hand, some clauses
may be highly prescriptive with draconian results if breached.
What follows is an example of a ‘claims notification clause’:

Notwithstanding anything to the contrary contained in this Contract, it is a condition precedent to Reference copy for CII Face to Face Training
reinsurer’s liability under this Contract that:
1. The Reinsured shall give to the Reinsurer written notice as soon as reasonably practicable of any
claim made against the Reinsured in respect of the business reinsured hereby or of its being notified
of any circumstances which could give rise to such a claim.
2. The Reinsured shall furnish the Reinsurer with all information known to the Reinsured in respect of Chapter
claims or possible claims notified in accordance with (1) above and shall thereafter keep the 7
Reinsurer fully informed as regards all developments relating thereto as soon as reasonably
practicable.

Sub-paragraph 2 gives an example of what information reinsurers may require. This information enables
reinsurers to, amongst other things, reserve appropriately while a claim is being adjusted and respond
promptly in due course to the reinsured’s loss settlements.

D6B Loss settlements clause
This clause sets out reinsurers’ obligations in relation to the reinsured’s loss settlements (that is,
Sets out reinsurers’
original loss payments), and what the reinsured must demonstrate to reinsurers in relation to its obligations in relation
settlements to trigger those obligations: to loss settlements

All loss settlements made by the Reinsured, including compromise settlements, shall be binding upon the
Reinsurers provided such settlements are within the terms and conditions of the original policies and/or
contracts and within the terms and conditions of this Agreement, and amounts falling to the share of the
Reinsurers shall be payable by them upon reasonable evidence of the amount paid [or scheduled to be
paid] being given by the Reinsured.

In this example, a reinsurer’s obligation to pay is, therefore, dependent upon the reinsured’s loss
settlements being:
• within the terms and conditions of the original policies; and
• within the terms and conditions of the reinsurance contract.