GUAA Action Sheet

Fall 1999

Medical Committee Workshops

By Wayne Fisher
Trustmark Insurance

During the Baltimore meeting, the Reinsurance Committee presented a workshop on topics of interest to both purchasers of reinsurance protection and reinsurers themselves. Tom Doyle, John McGarry, and Mike Morkin, Partners in Baker & McKenzie's Chicago, Illinois office, presented on issues of ÒUtmost Good FaithÓ in the reinsurance relationship, and the related topics of Litigation, Arbitration and Rescission of Reinsurance agreements. Baker & McKenzie is a large, international law firm with a practice group specializing in insurance and reinsurance company litigation and arbitration issues.

Mr. Doyle asked, ÒUtmost Good Faith Ñ what was it when we had it?Ó He outlined recent changes in the insurer-reinsurer relationship suggesting that no single incident points to this change. Rather, the changes evolved in tandem with the common law concept of ÒDutyÓ which is often driven by bad law made by poor decisions. He outlined 10 categories of issues contributing to changes in the way the reinsurance relationship has been perceived. These range from global business issues (the ability of a Òbad bookÓ of business to migrate successfully) and non-relationship issues (financial reinsurance, use of reinsurance to overcome entry barriers, etc) to relationship issues (changes in accounting practices prohibiting ÒsideÓ agreements, company ÒcrushingÓ losses that increase the marginal value of litigation for disputes.)

Mr. McGarry discussed what happens when things begin to go bad. If a company and its reinsurer cannot resolve disputes, arbitration has been the most common dispute resolution procedure. Both reinsurers and their ceding company clients must understand the other party's true intent. Companies should practice discipline about what is committed to writing, including e-mail messages. In a dispute, people tend to believe what is written rather than what is offered in explanation after the fact. Companies should not try to cloak written communication in the veil of confidentiality by labeling everything ÒAttorney Work Product.Ó All too often, this phrase is interpreted as meaning Òin anticipation of a lawsuit.Ó Finally, inconsistent behavior can be a detriment to favorable outcomes in disputes.

Mr. Morkin continued the presentation by stating that while ÒUtmost Good FaithÓ has not changed, the current body of law dealing with this concept has. As a consequence, both parties to a reinsurance contract must be sure that the agreement wording properly reflects both the intent of the arrangement, and the details of its administration, etc. Much of this wording is commonly referred to as ÒboilerplateÓ - clauses that are always there and may not be given much attention by the drafter. Careful development of a boilerplate can provide protection to both parties in the transaction. Mr. Morkin concluded his presentation by outlining examples of standard clauses that would favor and are important for the reinsured, as well as clauses that can be tailored for either party.

The workshop was well attended by members from both reinsurance and primary insurance companies. The Committee's ÒLet's Talk ShopÓ workshop continued the discussion on the issues raised in the earlier presentation.

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