1.          Default rule

C1        In accordance with Article 1.1.3, the parties may derogate from or vary the effect of Article 2.3.3. The latter provision only applies to the extent that the parties have not deviated from it by agreement.

C2        Contracts of reinsurance typically contain language regarding the reinsurer’s rights of inspection concerning the operations of the reinsured and the risks subject to the contract. Although there is no one standard inspection clause used in contracts of reinsurance, there are a few distinct types of inspection clauses in wide use, some of which are set forth in Annex D.

2.          Background

C3        The right of inspection aims at meeting a demand for information on the part of the reinsurer. Particularly in treaty reinsurance, the reinsurer is generally neither given information about each underlying risk nor about the claims presented to it. Similarly, under facultative excess of loss agreements, the reinsurer is often only informed of the name of a well-known catastrophe, such as “Hurricane Katrina”, in the context of which the reinsured seeks reimbursement. In view of the scarcity of information the reinsurer possesses, the reinsurer must be granted with a right to inspect the reinsured’s books and records (Clyde & Co 30.1, Goshawk Dedicated Ltd v Tyser & Co Ltd [2006] EWCA Civ 54).

3.          Scope of the right

C4        Forming part of Section 3, Article 2.3.3 applies during the contract period (and possibly beyond). By contrast, during the negotiation of the contract of reinsurance, the reinsurer has no right to inspect. A prospective reinsured may openly state that it is unwilling to provide requested information – but in doing so it, of course, runs the risk that the reinsurer will refuse to do further business with the applicant. Equally, a reinsurer may make its decision to enter into the contract dependent on the production of documents by the prospective reinsured. When a reinsured seeks to comply with such a request, it must produce documentation that is sufficiently complete, accurate, and not misleading in accordance with the general principle of utmost good faith (Article 2.1.2).

C5        Under Article 2.3.3, the reinsured must give the reinsurer access to records concerning the reinsured relationship only. The reinsured does not have to grant the reinsurer access to information that is irrelevant to the contract in question.

C6        The reinsurer may exercise its right at any reasonable time. This primarily means that inspections generally must be conducted after having made an appointment with the reinsured and should take place during business hours. Yet, the reinsured has no right to refuse to make an appointment for inspection with the reinsurer. The reinsured cannot, for example, use lack of time as an excuse for refusal to comply. Rather, the reinsured must make time for inspections by its reinsurer. However, if the reinsured is a small organization with a limited number of personnel who can be spared to assist, the reinsurer should, however, avoid conducting its inspection during renewal season, whenever possible (Clyde & Co 30.33).

C7        The reinsured must allow the reinsurer to conduct inspections at its head office or any other place where information in its possession or under its control is located.

C8        The reinsured must co-operate when the reinsurer conducts its inspection. For instance, the reinsured should not prevent the reinsurer from taking copies of any inspected document. Yet, the reinsurer must consider the reinsured’s interest when conducting an inspection. The latter should be able to continue running its business with as minimal disruption as possible while the inspection is taking place (Clyde & Co 30.33).

4.          Advance notice

C9        Under Article 2.3.3, the reinsurer must give the reinsured reasonably advance notice of the intended inspection. What is reasonable depends on the circumstances of the case, inter alia on the extent of the intended inspection. A short-term notice may be sufficient, where the reinsurer’s need to inspect is urgent. This is the case, in particular where the reinsurer is bound to time limits. Shorter notice may also be reasonable where the inspection request is limited in scope.