The Principles of Reinsurance Contract Law PRICL

30 April 2020

This article was first published on the EC3 Legal website prior to its merger with Birketts on 30 April 2020.

In 2016 the Project Group on the Principles of Reinsurance Contract Law (“PRICL”) was established as joint venture between a number of European Universities, with input from market participants and special advisers who were examining the feasibility of formulating "Principles of Reinsurance Contract Law" (PRICL). These were finally published in 2019, Partner and reinsurance specialist Gavin Coull looks at the end result.

Drawing upon Pliny the Elder, John F Kennedy noted that “the one unchangeable certainty is that nothing is unchangeable or certain.” Whilst the days of reinsurance policies being described by judges as being “made up…of paragraphs culled from several precedents and strung together without any accurate estimate of their relative consistency” and, rather more pithily as “a dogs dinner,” and whilst most major markets have sought to embrace contract certainty, in transnational (and indeed intra-national) reinsurance programs, ‘certainty’ is more often than not hoped for rather than achieved. This has been all the more so in the recent soft reinsurance and retro markets, but it is nothing new. A particular market or jurisdiction may well believe it knows what certain word or phrase means, and that there is, as the American Author Zig Ziglar put it “power in words - what you say is what you get,“ but those same words can become chameleon like when transposed into a different jurisdiction or different market understanding, and can unwittingly change their colour and effect.

Whilst markets have for many years agreed, developed and revised and vast array of ‘standard clauses’, often incorporated into policies by a range of numbered acronyms (LMA, NMA, LSW, IUA ,AVN to name but a few) which, until challenged provide a comfort blanket of perceived certainty, the matter does not stop there. All too often, in the event of a contested claim, then even where parties to policies up the chain of insurance/reinsurance/retrocession that are governed by the same applicable law, disagreements and contrary interpretations emerge as to what words, phrases or clauses actually do mean. This is inevitably compounded when programs contain a multiplicity of governing laws and jurisdictional forums, both horizontally and vertically. Can this ever be resolved or avoided?

In 2016 the Project Group on the Principles of Reinsurance Contract Law (“PRICL”) was established as joint venture between a number of European Universities, with input from market participants and special advisers. The stated aim of PRICL is to “increase legal certainty in relation to reinsurance transactions which is similar to …regulators’ initiatives to enhance ‘contract certainty’.”

To achieve this the PRICL has not been drafted as a “model law”, but rather as a “soft law” to be applied should the parties chose it. It is an ambitious project, which focuses on several key areas where uncertainty as to outcome have been recurrent themes, such as aggregation and follow the settlement, and draws upon legal concepts from many jurisdictions. It does so by setting out relatively brief clauses which are accompanied by guidance notes and examples. However, as PRICL is not subject to one governing law, then whilst there may be elements of familiarity with the concepts, then arguably all parties will, by default, seek to apply the PRICL clauses and principles to each particular and unique set of facts, much the same as they do now. Indeed, the very fact that the clauses are accompanied by guidance notes raises the prospect that as much as case law has developed over time (but is still subject to dispute) why will the guidance notes be any different?

The problem of uncertainty remains real, and does require minimising, and it is of course welcome that academia and the Market are seeking to provide a streamlined and collaborative approach to changing generations of familiarity. It remains to be seen to what extent either the PRICL clauses and/or the guidance notes are adopted by all or some of the market, or whether the pull of familiar words and phrases, and legal principles will remain as strong as ever.

For further information please contact the author, Gavin Coull.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2020.



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