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Document Reviews

Document reviews are performed for various reasons based on client specific needs.  Generally, the process is segmented into three phases.

 

The initial focus in reviewing insurance and reinsurance contracts is to verify that the agreement is consistent with the client’s intent.  Too frequently, there are errors or lapses within the language which cause the contract wording to stray from the negotiated terms.  Issues can arise in many places, and are often found in supposedly boilerplate language that is too often overlooked.

 

Once intent is verified, the economics of the transaction are reviewed.  Specific terms within contracts can create unrecognized disparity between the parties.  This frequently occurs in the collateralization or funding requirements within Producer Agreements and Reinsurance Treaties, as well as the pricing of certain types of excess of loss Reinsurance agreements.  Such disparity may be by design, but the ramifications must be quantified in order that the client may understand the complete cost of the transaction being documented.

 

Following confirmation of intent and economics, the specific wording of the contract is reviewed to ensure consistency and applicability.  A too-common practice in the insurance/reinsurance industry is to draft agreements through “cutting and pasting” of segments from other, unrelated contracts.  Examples of common mistakes include –

  • Service of Suit clause references a different state than Governing Law clause
  • Limit and Retention section states Loss Adjustment Expense is covered in addition to limit, while Ultimate Net Loss definition includes Loss Adjustment Expense as part of Loss.
  • An ex gratia payment exclusion is included, while the definition of Loss Expense includes coverage for ex gratia payments.
  • The definition of Premium is inconsistent between sections of the contract.

 

Insurance and Reinsurance contract terminology is unique.  An objective third party knowledgeable in the subject line is useful in identifying non-congruencies. 

 

The most frequently reviewed documents include:

  • Reinsurance Agreements, including Inter-Company Arrangements, and Captives
  • Managing General Underwriter/Managing General Agent Producer Agreements
  • Contingent Commission Agreements
  • Insurance Policies and Endorsements
  •  Regulation 114 Trust Agreements