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Claims Control: Challenges and trends for Latin American insurers working with the London Market
Claims control is one of the striking features of reinsuring through the London market. It brings with it a tension: the reinsured in the position of a go-between whilst London market reinsurers take charge of claims negotiation with the underlying insured.
First, let's be clear what we are dealing with. Claims control is a clause found in the reinsurance wording which, as well as giving the reinsurers the right to appoint third parties such as loss adjustors, allows reinsurers to control all negotiations pertaining to the settlement of the underlying loss. It is a stricter version of its sister clause, claims co-operation, which will often only require the reinsured to keep the London market appraised of developments in the underlying claim.
Second, claims control is often, in English law, expressed to be a condition precedent. Conditions precedent are a draconian tool where non-compliance equals non-recovery of claims indemnity. Expressing the claims control clause as a condition precedent gives reinsurers the maximum control – reinsurers can refuse to pay claims if the claims control clause is breached, regardless of whether they have suffered any prejudice from the breach.
Third, claims control clauses are common where the reinsured retains little, or none, of the risk. The commercial reality of the small retention is that the London market is bearing the majority of the risk and therefore seeks to put itself in the strongest position. However, a case last year in the Commercial Court in England made some inroads into tempering reinsurers' power of control.
In Beazley Underwriting Limited & Ors v Al Ahleia Insurance Company & Ors  EWHC 677 (Comm), the English Court decided that a claims control requirement in a reinsurance policy did not mean that the reinsured was obliged to refuse to speak to the insured's representative at all. Further, the claims control clause only covered loses which might give rise to a claim under the reinsurance policy and did not extend to a settlement falling within the reinsured's retention, which the reinsured was at liberty to conclude without reference to the reinsurers. The decision also gave welcome clarification on whether an offer to settle is an admission of liability, which the Court ruled was not.
Whilst it may often seem that reinsurers hold all the cards when it comes to claims control, these cards are not without qualification and it is important that the right of control is exercised in good faith and not with reference to conditions wholly external to the subject matter of the reinsurance.
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