Page 310 - M97TB9_2018-19_[low-res]_F2F_Neat2

11/20 M97/February 2018 Reinsurance

Activity
Punitive damages, known in the UK as exemplary damages, are awarded where the defendant’s conduct is found to
be intentional, wilful, wanton or malicious. Courts may permit an award of punitive damages in addition to
compensatory damages, and are intended to punish the defendant and to discourage the conduct of the type the
defendant engaged in.
In 1995, the Hollywood actor and former American Football star, OJ Simpson was acquitted in a criminal trial of the
murder of his ex-wife. In a subsequent civil case, the jury awarded relatively modest compensatory damages against
Simpson, but awarded the families of the deceased tens of millions of dollars in punitive damages because the civil
jury found, in effect, that Simpson was guilty of murder. Check out the bizarre circumstances of this celebrated case
at http://en.wikipedia.org/wiki/O._J._Simpson_murder_case.

• Is pollution coverage provided and is it restricted to sudden and accidental incidents only?
• If any North American coverage is written by the reinsured then full details will be required by
reinsurers.
• What is the length of time taken to settle the average claim?
• What, if any, coverage is provided by the reinsured in respect of products liability?
• The reinsured would also be expected to provide details of its exclusion list.

F2A Accumulations including pollutants

Pollution is an important consideration to reinsurers of public liability risks. Pollution is usually covered
Pollution is an
important as standard on a sudden and accidental basis only so that only accidents that occur at a particular place
consideration to and time are insured, say, a sudden catastrophic spillage of chemicals or an explosion.
reinsurers of public
liability risks
Gradual losses, such as slow leakage from a tank occurring over many years, would not be covered and
neither would intentional discharges of pollutants which result in damage. If pollution cover is granted,
it is usually issued under a separate policy and not within the public liability cover, which is known as
environmental impairment liability. Pollutant accumulations can have serious effects where an
environmental liability insurance covers a company engaged in the food processing industry. Reference copy for CII Face to Face Training

F3 Types of reinsurance purchased

Facultative insurance is unusual for this type of business although may, perhaps, be used to support an
existing treaty relationship for particular aspects. Companies in a start-up position or those wishing to
maximise their line size could purchase proportional reinsurance. Otherwise, excess of loss would be
the usual route, sometimes in combination with other liability classes. Cover is on a losses occurring
basis up to the limit of indemnity with an upper layer to cover ‘clash’ of one or more policies and costs in
addition. Usually, the reinsurance is granted with limited reinstatements, although the original insurance
coverage would not be limited for the period, other than for products liability.
Public liability cover is often rated on an exposure basis, as losses which affect reinsurers tend to be
infrequent and large and not ideally suited to historical burning cost rating. However, if a carrier writes a
large account there will be enough historical experience to make an experience rating valid.
Infrequent large losses make excess of loss reinsurance suitable as it smooths peak losses for the
reinsured by absorbing only the upper part of the loss profile.

F3A Subsections to public liability
Householders’ legal liability is a form of public liability provided to private individuals under their
household buildings or contents policy. This covers their liability as homeowners or occupiers in relation
to other members of the public. Typical limits of indemnity can be £2m or more.
Travel policies customarily contain a section to cover an individual’s public liability or, in this case,
personal liability. This cover is usually worldwide, with a higher premium chargeable to those visiting
the USA.

11
Chapter