For policyholders whose interests are insured in London, it can be critically important to understand the Lloyd’s claims processes. In the following guest post, my good friend Perry Granof (pictured) takes a look at recent changes to the Lloyd’s claims processes effective January 1, 2012 that will affect a wide variety of professional liability claims. Perry is Managing Director of Granof International Group LLC, an insurance consulting and claims service firm specializing in global executive, professional and financial institutions liability. He is also also Of Counsel at the Williams Kastner law firm in Seattle, Washington.
Many thanks to Perry for his willingness to publish his article here. I welcome guest posts from responsible commentators on topics relevant to this blog. Any readers who are interested in publishing a guest post on this site are encouraged to contact me directly.
Here is Perry’s guest post.
I travelled to London in late November 2011 where I met with Lloyd’s claims representatives and first learned about the Lloyd’s Claims Transformation Programme (CTP). According to Lloyd’s, CTP is intended to provide improved customer service and greater flexibility for managing agents.
CTP was introduced to the Lloyd’s market on January 1, 2010, as a pilot program for marine hull, property, and casualty treaty classes of business. The pilot was deemed successful, achieving a 40% average improvement in claims transaction time. According to Market Bulletin Y45221, dated September 30, 2011, the program was expanded to new claims in Financial Institutions (FI), Professional Indemnity (PI), which includes D&O, and medical malpractice, to be effective as of January 1, 2012.
CTP is intended to modernize, add quality and streamline the Lloyd’s claims handling process. However, it may give way to new disputes and potential opportunities for conflict resolution. Among the various procedural guidelines introduced by CTP is a streamlining of the triage categories from three to two. They are now “Standard” and “Complex” claim categories. The threshold is a specified dollar amount of exposure plus a sundry of other factors such as a potential or actual denial of coverage or allegations of fraud.
All complex claims, unlike Standard claims under the new Lloyd’s protocol, additionally have a second tier lead Managing Agent called a “Second”, which functions in conjunction with the “Lead” Managing Agent. Previously the Second underwriter only played a claims agreement role in certain circumstances, and an oursourced service provider represented the interests of the followers on every claim. The Second helps to ensure that an appropriate strategy is in place to help facilitate a proper resolution of the claim and that the other Managing Agents on the slip that make up the following market are fully represented and kept abreast of developments.
The Second reviews the documentation and other considerations, which the Lead relied on in its recommendations to the market, and confers with the Lead in connection with: the “Handling of the Claim”; the “Ongoing management of the Claim”; the “Contingent Financial Planning (Reserves, Costs, etc.)”; Experts” and the “Settlement Process." The protocol also makes it clear that the “Followers”, are entitled to “contact the Lead (or Second) to raise queries or share their views on the proposed strategy to resolve the claim.”
A review of the relevant Market Bulletins, in particular Ref: 4522 and 4531, certainly justifies Lloyd’s optimism in touting the advantages of CTP. CTP will lead to an open and more effective claims handling regime among syndicates engaged in the adjustment of Complex claims. However, it could also lead to an increase in conflicts arising between the Lead, the Second and the Follower Lloyd’s syndicates, by giving non-Lead syndicates more voice and responsibilities.
Under the CTP, non-Lead syndicates clearly have standing to raise queries and share their views and can offer platforms for followers in which to dissent to positions offered by Lead carriers. Some emerging conflicts that I can foresee, especially in the PI/FI and D&O classes of business include drop down issues. When an exposure potentially exceeds the available insurance program, a lead insurer may propose a drop down arrangement to save policy limits for itself and possibly throughout the entire tower of coverage. A Second or Follower may respond arguing that the Lead must fully exhaust its coverage before the rest of the market begins contributing to the resolution of the claim. This issue has recently been addressed in the case of Citigroup, Inc. v. Federal Ins. Co., 10-20445, 2011 U.S. App. LEXIS 16316 (5th Cir. Aug. 5, 2011). In Citigroup, the Court held that the excess policies unambiguously required that the primary carrier pay its full policy limit as a condition precedent to the excess carriers filling the gap by dropping down and providing coverage. Still, Citigroup is only binding in the 5th Circuit and the case was determined by the specific policy wordings at issue.
Another source of conflict could involve situations where a Lead, a Second or Followers disagree over the placement of claims in an insurance tower covering one particular policy year, over another. This may become contentious where participating insurers have different reinsurance treaties covering different policy years, impacting their net exposures. Also, if the exposure is significant, it can become a dispute, which may not be easily soluble.
A third source of conflict could involve situations where Second and Followers may perceive a given policy limits claim, directed by the Lead resulting in disproportionate and inequitable payments of insurance proceeds, constituting a waste, and possibly giving rise to extra – contractual damages.
All of these situations, and others that I am unable to currently foresee, may require an efficient and effective dispute resolution mechanism to insure that disagreements among the syndicate companies to a tower are resolve quickly cheaply and confidentially. In reviewing Section 5.0 "Resolution of Disagreements" under Market Bulletin Ref: Y4531, which describes the 2010 “Claims Scheme Process Guidelines," there does not appear to be any mention of a disputes resolution process, other than a meet and confer provision. Also Lloyd’s underwriters are required to use their best endeavours to reach a consensus under Market Bulletin Ref: Y4522 which also makes reference to a mediation and arbitration process as "prescribed by Lloyd’s from time to time". These provisions are designed to make it easier for Lloyd’s co-insurers as opposed to non-Lloyd’s co-insurers to resolve issues amongst themselves without recourse to formal dispute resolution proceedings. Although it represents an effort to address future disputes among Lloyd’s co-insurers, this may not entirely avoid the risk of formal proceedings, especially considering the types of disputes that could arise from the issues I set forth above.
The CTP may require a new and expedited regime to resolve FI, PI & D&O coverage disputes among Lloyd’s carriers, quickly, quietly and efficiently, minimizing any disruptions of the claims handling process. This may ultimately give rise to mediation and arbitration opportunities in the United States and abroad to resolve disputes among Lloyd’s syndicates in connection with US and non-US venued claims.
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