Experts Urge Sustained Effort to Reach Contract Certainty

By Robert O'Connor, London editor
A.M. Best
April 28, 2006
Posted May 4, 2006

Contract certainty is a necessity for underwriters, clients and brokers, a panel of experts told delegates to the annual conference of the British Insurance Brokers Association in the coastal city of Brighton, England.

Hugh Price, a partner and director of insurance in the law firm Hugh James Solicitors, evoked a theme much mentioned recently when he told the audience the readiness of Lloyd's to pay claims, without question, after the 1906 San Francisco earthquake established Lloyd's "rock solid" reputation in the United States.

This response is in contrast to the claims disputes that followed the terrorist attacks on the United States on Sept.11, 2001, said Price, who was moderator of the panel. Hugh James Solicitors is based in Cardiff, Wales.

One of the lessons that followed Sept. 11, Price said, was "whatever you do, don't get involved in disputes."

Price warned the audience that contract certainty wouldn't go away as an issue. The U.K. Financial Services Authority is seeing to that, he said.

"Contract certainty is here," Price said. "We've got to sort it out. We've got to get it done."

Contract certainty is defined as the complete and final agreement between parties before a contract takes effect.

Phil Scarrett, director of regional brokers and national accounts for U.K. insurer Norwich Union, said the practice of making the deal in advance of the explanation has been a part of the U.K. insurance industry for most of the past 100 years.

Bringing about contract certainty requires changing mindsets, Scarrett said. "We can't afford to take our foot off the gas at all," he said.

Scarrett noted the pressure on organizations to meet various reporting requirements. "It's not just a matter of getting contract certainty," he said. "It's also a management information issue."

Roger Flaxman, principal of broker Flaxman & Partners, warned that the introduction of contract certainty would affect the way renewals are conducted. The nature of talks, which often go right down to the wire, can create pressure on the broker to be flexible, Flaxman said.

"Many, many deals are clinched at the last moment," Flaxman said.

Richard H.H. Persson, a broker based in Plymouth, England, told of his success in obtaining coverage for a client who wanted to insure a large supply of potatoes against theft. The addition, for free, by the underwriter of further coverage led to a claim being paid over an occurrence of contamination. The client was very pleased, Persson said.

Flaxman noted suggestions that renewal talks begin earlier to make contract certainty easier to obtain. "Where's it going to end?" he asked.

William Norris, a London-based barrister, suggested pressure for contract certainty is likely to come from both the FSA and the Law Commission, an independent body established by the British Parliament that is looking at possible changes to the law in England and Wales.

Barristers and solicitors make up the two halves of the British legal profession. Solicitors normally prepare cases. Barristers, identified by their robes and wigs, normally argue cases in court. As a "queen's counsel," Norris is a senior barrister.

Noting his role as a legal advocate, Norris introduced himself as "the fortunate beneficiary of contract uncertainty."

But he warned that the FSA views contract uncertainty as "simply not sustainable any longer."

Contract certainty is in the interests of insureds, insurers and brokers, Norris said, arguing that the lack of certainty exposes brokers to potential errors and omissions claims.

Flaxman echoed this point. "A lot of brokers are not even aware that they have a liability," he said.

Copyright 2006 A.M. Best Company, Inc.

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