1.              Implications of the General Part of the PRICL for Chapter 2 (Duties)

C1           Chapter 2 provides for duties of the parties. The provisions contained in Chapter 2 are default rules as follows from Article 1.1.3. Subject to judicially imposed limits on the alteration of default rules, the duties set out in this Chapter may be altered by the parties to the contract of reinsurance – provided that the alteration of the default rule is knowing and voluntary and not the product of fraud, misrepresentation, duress, undue influence, or other conduct that would make the alteration of the default rule unenforceable pursuant to the PICC (see Article 3.2.1 et seqq PICC). In other words, where the parties have opted in favor of the PRICL for resolution of disputes arising in a reinsurance relationship, this does not prevent the parties from agreeing on particular rules for specific issues, even if the particular rule chosen is at variance with the PRICL.

C2           Where the parties have opted in favor of the PRICL, the PRICL govern all aspects of any contractual dispute addressed by the provisions of the PRICL. Where the PRICL do not provide guidance or a rule for resolution of a dispute (external gap), the dispute is governed by the PICC (see Article 1.1.2). If neither the PRICL nor the PICC provide guidance or a controlling rule of decision, the dispute shall be resolved according to applicable national law (see Article 1.1.2 Comment 4).

2.              Remedies for breach of duty under Chapter 2

C3           Chapter 2 determines the duties the parties owe one another. However, it abstains from giving remedies for breach of duty by either party. Such remedies are provided in Chapter 3.

3.              The duties set forth in the PRICL apply to all stages of the reinsurance contract relationship

C4           The duties owed by the parties to a contract of reinsurance affect the entire relationship of the parties. Although litigation and arbitration disputes often focus on pre-contractual duties of disclosure, the duties of the parties apply regarding the entire contract process and operation of the contract, including duties concerning confidentiality, documentation, allocation, and performance of the contract of reinsurance generally. Some duties, such as the duty of confidentiality, owed by the parties may continue after the contractual relationship has come to an end.

C5           A general duty of utmost good faith is imposed on parties to a contract of reinsurance (see Article 2.1.2). This duty is considered the basis of all specific duties detailed in the PRICL. Again, this duty applies not only to pre-contract activity but to the entire performance of the contract. In this, Article 2.1.1 is in line with Article 1.7 PICC. According to Comment 1 on Article 1.7 PICC, the parties’ behavior “throughout the life of the contract, including the negotiation process, must conform to good faith and fair dealing” (emphasis added).

C6           A reinsured that was completely candid during the contracting process is not relieved of the duty after the agreement is made and logically remains subject to the duty during the term of the contract of reinsurance and during the presentation of claims for payment. However, some precedent and commentary concerning reinsurance appears to adopt the view that “the failure of the claimant to disclose certain material reports after conclusion of the contract did not provide any remedy or right to the reinsurer to avoid the contract, although the assured was under a continuing duty not to make fraudulent claims” (see Clyde & Co 1.82, discussing Manifest Shipping Co Ltd v Uni-Polaris (The Star Sea) [2001] Lloyd’s Rep IR 247 (House of Lords); see also Staring and Hansell § 10:6). Whether such a breach of disclosure duties after formation of the contract of reinsurance provides a remedy will be decided in accordance with Chapter 3 of the PRICL.