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Contracts

General

What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?

The parties have the broad freedom to contract on terms as they see fit. The Supply of Services (Implied Terms) Act 2003 implies terms on consideration, time of performance and standard of performance that are not excludable by agreement. Standard of performance is generally considered to apply to consumer contracts only. The minister in charge of consumer affairs has the power to exempt certain contracts from the scope of the legislation. To date, such power has not been exercised.

Mandatory/prohibited provisions

Are (re)insurance contracts subject to any mandatory/prohibited provisions?

(Re)insurance contracts are subject to no mandatory or prohibited provisions.

Implied terms

Can any terms by implied into (re)insurance contracts (eg, a duty of good faith)?

Terms can be implied as part of the process of judicial construction of the contract where:

  • they are necessary to give business efficacy to the contract;
  • the implied term is a sufficiently obvious implication of the parties’ intentions (despite not being explicitly stated); and
  • the contract is deemed dishonourable in the market in which the parties contract.

Standard/common terms

What standard or common contractual terms are in use?

Common contractual terms include:

  • an occurrence-based first reported trigger;
  • a continuous policy allowing for integrated occurrence across years;
  • no duty to defend;
  • maintenance deductible for certain expected or intended injuries or damages;
  • modified New York law as the governing law; and
  • arbitration in England or Bermuda.

Treaty reinsurance usually includes clauses on:

  • ultimate net loss;
  • inspection of records;
  • insolvency; and
  • special termination.

‘Smart’ contracts

What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?

The development of ‘smart’ contracts is formative. The (re)insurance industry is becoming increasingly tech-savvy and benefits from a young, well-educated and well-travelled workforce. In 2017 Bermuda saw the introduction of companies carrying out blockchain-based digital token sales using Ether as their cyptocurrency. Ethereum smart contracts are likely to spread into the Bermuda (re)insurance market given the market’s prominence.

Breach

What rules and procedures govern breach of contract (for both (re)insurer and insured)?

(Re)insurer Where there is a breach of an insured’s duty of utmost good faith, the (re)insurer is entitled to avoid the policy if it can establish that it was induced by the breach. A (re)insurer can also seek damages in lieu of rescission for negligent misrepresentation under the Law Reform (Misrepresentation and Frustrated Contracts Act) 1977. Where the misrepresentation is fraudulent in nature, the (re)insurer may have a claim for damages in the tort of deceit.

A breach of warranty will discharge a (re)insurer from liability from the date of the breach.

If an insured fails to provide the claims cooperation or control required under the policy, the (re)insurer may be entitled to damages for loss of opportunity. The insured is unlikely to be able to oppose the claim unless cooperation or control is a condition precedent to liability.

Breach of a procedural condition precedent means that the (re)insurer is automatically not liable for the claim or loss to which the precedent relates. If the insured uses fraud or any fraudulent means or device to make a claim under the policy, it forfeits the whole benefit of the policy. This is generally understood to mean that the (re)insurer can reject the tainted claim in its entirety and repudiate the policy prospectively. In theory, the breach of a term by the insured can, as a result of the gravity of its consequences, entitle the (re)insurer to repudiate the policy.

Insured A (re)insurer will be in breach of an insurance policy if it fails to indemnify the insured on the occurrence of the insured peril. In this event, the insured’s recourse is to seek unliquidated damages for breach of contract. The insured’s only remedy for breach of the duty of utmost good faith is to avoid the insurance contract, which is seldom an attractive remedy unless the insured wishes to secure return of premium. Declaratory relief may be available to the insured, declaring that the policy is valid or in existence, or that it covers a given loss. The (re)insurer has no liability to the insured for the conduct in which it administers claims under the policy (ie, there are no bad-faith damages) because of the doctrine that there are no ‘damages on damages’.

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