1.          Duty of documentation

C1        Traditionally, both insurance and reinsurance have involved significant separation between the time at which a risk is placed and the time at which a finalized documentation of the agreement is provided. This separation may create problems in that significant claim activity can occur during this period, creating potential for coverage disputes because there is not a textual memorialization of the agreement. To minimize such disputes, reinsurers should provide a finalized documentation of the agreement as soon as feasible after the agreement is reached.

C2        The duty to make fair, accurate, and prompt documentation applies not only to reinsurance treaties and facultative certificates but also to other agreements made by reinsureds and reinsurers in the course of performing their respective duties and exercising their respective rights related to the contract of reinsurance.

C3        The documentation should fairly and accurately represent the substance of the agreement. An attempt by either party to “sneak in” a provision inconsistent with the scope and understanding of the parties at the time the agreement is made would not be consistent with the duty of utmost good faith.

C4        Documentation is not a panacea for avoiding disputes. The parties may disagree over the meaning of the text of the documentation. Or they may argue that extrinsic information, context, or trade usage and practice provide a basis for decisions outside or even in derogation of the text. But prompt and thorough documentation of a reinsurance agreement will reduce the instances and costs of disagreement over the content of the agreement.

2.          The basic requirements of documentation

C5        Any contract of reinsurance should be sufficiently documented. For that purpose, the text must set forth the major terms and provisions of the agreement. The goal is to provide “contract certainty” by having the written agreement adequately address the terms of the agreement in sufficiently clear fashion. Contract certainty requires reasonably timely and current record-keeping as well as sufficiently complete and comprehensive record-keeping.

3.          Contract Certainty Code of Practice of the London Market

C6        The London Market has utilized a Contract Certainty Code of Practice since 2007. This code was created by the Market Reform Group and is now maintained by the London Market Group, a rebrand of the Market Reform Group. Although the Contract Certainty Code of Practice is aimed primarily at insurance, it equally sets forth an industry standard as to reinsurance placement and documentation.

C7        The concept and goal of contract certainty are that each party knows precisely what product is being sold at the time it is being sold, so it can be priced correctly and so the purchaser knows exactly what it is buying without any later misunderstandings. The objective of contract certainty is to provide clarity for both reinsured and reinsurer on the terms and conditions of the contract by the time that they enter into the contract.

C8        As stated in the Code:

Contract Certainty is achieved by the complete and final agreement of all terms between the insured and insurer by the time that they enter into the contract, with contract documentation provided promptly thereafter.

It is not regarded as sufficient to use words such as “terms to be agreed” when forming a contract of reinsurance. Rather, all terms to be memorialized in writing should be agreed upon by the inception date of the contract. Although the Contract Certainty Code of Practice does not have force of law, it represents industry understanding and best practice for UK-regulated general insurers and is followed in principle by most participants in the London Market. Contract certainty has now been introduced on a very similar basis in Bermuda, New York, and Singapore.

C9        Before the concept of contract certainty was introduced, a brief summary of the main terms of the reinsurance was agreed upon and commonly represented only by a brief writing (the “placing slip”, or simply a “slip”). Much later, often more than a year, the full reinsurance contract wording was issued to replace the slip. If there was a major loss in the meantime, this often led to disputes regarding terms that were unclear or unknown. Placing slips did not always accurately reflect the material terms of the reinsurance agreement. Primary concerns underlying the adoption of the Contract Certainty Code of Practice were: (1) incomplete contracts – often the slip did not accurately reflect the material terms of the reinsurance agreement (the terms set out on the slip were unclear, including such problems as: unclear referencing to specific clauses which were meant to apply, missing payment terms, unclear parties to the contract, unclear reinsurance cover, unclear subject matter of the reinsurance); (2) delayed receipt of signed contract wording; and (3) risk of two competing contracts in existence – the slip as the provisional contract until it had been superseded by the signed contract wording as the finally agreed contract. In this sense, until a full reinsurance contract wording was signed by both parties, the slip was the record of the contract between the parties. Although the signed wording generally took precedence over the slip legally, when the terms of the slip and contract wording were fundamentally different, there were sometimes legal disputes as to whether the slip or contract wording took precedence.

C10     The Contract Certainty Code of Practice sets forth eight principles, that should be met, including that insurers provide “appropriate evidence of coverage” within 30 days of the inception date of a contract.

C11     In addition to defining contract certainty as “the complete and final agreement of all terms (including signed lines) between insureds and insurers before inception” of the contract, the Code provides that the “full wording” of the contract “must be agreed before any insurer formally commits to the contract” and that there must be the “appropriate evidence of cover”. “Full wording” of a submission seeking insurance is to be “a combination of: (i) wordings and/or clauses; (ii) either referenced and/or full text; and (iii) bespoke [customized] and/or model material”, with brokers allowed to “choose which combination is submitted to insurers”, who in turn “may choose whether to accept this or require a different approach” to documenting the contract.

C12     The PRICL does not incorporate the Contract Certainty Code of Practice. Rather, than a fixed number of 30 days, Article 2.3.2 provides that the parties shall document their agreement reasonably promptly. Nevertheless, the 30-day period provided by the Code provides a useful benchmark for determining the period within which the parties’ agreement should be laid down in writing.

C13     Where a party to a contract of reinsurance has not met the requirements of this Article, the tribunal deciding a dispute arising out of the contract may take this into account in rendering its ruling. In determining the relative responsibilities of the contracting parties regarding documentation and the consequences of inadequate documentation for the purpose of contract construction, Articles 2.1.12 and 2.1.17 PICC provide useful guidance. See Article 2.1.12 PICC (where writing in confirmation is sent within a reasonable time after formation of the contract, additional or different terms stated in the purported confirmation become part of the agreement unless they materially alter it or the recipient makes a timely objection); Article 2.1.17 PICC (where a written contract states that it contains the entire agreement between the parties, the contract cannot be contradicted or varied by evidence of prior statements or agreements but such information may be used to interpret the writing).