This is our pick of the key recent legal and regulatory issues affecting the insurance and reinsurance sector.

Non Party PI Insurers Liable for Costs

In the January 2019 case of Various Claimants v Giambrone the English Court has awarded a non-party costs order against AIG, the law firm’s professional indemnity insurer. The Court’s decision appears to have applied a very broad interpretation of its discretion to order a non-party to pay costs of litigation. The decision is even wider than the Court of Appeal’s decision last year in Travelers v XYZ where Travelers at least had some control over the proceedings (which the court there held had prolonged the proceedings). The Giambrone decision holds surprisingly that even where an insurer does not exert control over the insured’s conduct of the proceedings, there is still a risk of an adverse costs order. It appear that the test is now the extent to which the non-party (here the insurer) benefits from its arrangement with the litigating party (here the insured) and benefits from the outcome of the proceedings. The decision is, not surprisingly, being appealed.

Please click here for more information about this judgment.

English Arbitration Clause Trumps Washington Court Service of Suit

The English Commercial Court ruled on 21 December 2018 in Catlin Syndicate v Weyerhaeuser Company that a coverage dispute relating to claims made under a product liability policy containing both a London Arbitration clause and a Washington Service of Suit clause should be heard by a London Arbitration panel rather than the Washington Courts. The Court commented that the position would be the same under Washington State law despite Washington having anti-Arbitration legislation.

Please click here for more information about this judgment.

Must insurers sue their insureds/beneficiaries of policies in the EU member state of their domicile?

The Court of Appeal’s welcome judgment in The Atlantik Confidence in late 2018 clarifies the position on when an insured can insist on being sued in the Member State in which it is domiciled. The decision is significant for insurers and their insureds, particularly in EU cross-border insurance policies and claims.

Please click here for more information about this judgment.

The journey from SIMR to SMCR for insurers

Insurers, reinsurers and managing agents will be fully within the scope of the Senior Managers and Certification Regime (“SMCR”) regime from 10 December 2019, following a staggered implementation period which started on 10 December 2018, with compliance with all aspects required by 10 December 2019.

Insurers were previously subject to the less stringent Senior Insurance Managers Regime (“SIMR”), which was driven by the EU Solvency II Directive. In this article, we first summarise the key changes as a result of the SMCR for Solvency II insurers (i.e. those insurers who are caught by the Directive) and large Non-Directive Firms (i.e. those smaller insurers outside of the scope of the Directive, but who have nonetheless applied for authorisation under it), and then suggest some important steps to take to ensure your firm is on track.

In related news, the FCA has now proposed to exempt heads of legal at regulated firms from the requirement to be approved as a senior manager under the SMCR in response to concerns that doing so would conflict with legal privilege rules. The announcement is one of several proposed amendments and enhancements to the SMCR set out in a new FCA consultation paper. The FCA is seeking views on its proposed changes by 23 April 2019.

US-UK Covered Agreement Finalized; NAIC Model Law Amendments Delayed

On December 11, 2018, the U.S. Treasury and U.S. Trade Representative announced that the U.S. and U.K. had reached a final agreement on certain reinsurance collateral and other insurance regulatory measures outlined in the “Bilateral Agreement Between the United Kingdom and the United States Of America On Prudential Measures Regarding Insurance and Reinsurance”(UK Covered Agreement). The UK Covered Agreement mirrors the language in a prior agreement between the U.S. and the EU signed in September 2017, the “Bilateral Agreement Between the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance” (EU Covered Agreement). A separate covered agreement for the UK was necessary due to plans by the UK to exit the EU by March 2019. The UK Covered Agreement has been sent to the U.S. Congress for its review and is subject to a 90-day notification period before it can be signed and come into effect.

In related news, the insurance sectors of the UK and Switzerland are set to continue trading freely with one another after the UK has left the EU. The new arrangement will replicate the effects of the existing EU agreement with Switzerland, and is part of the UK’s continued efforts to cement closer relationships with some of the world’s most important financial markets as it prepares for a future outside of the EU. The agreement will come into force when the current EU-Swiss Direct Insurance Agreement ceases to apply to the UK. Further information can be found here.

Key regulatory issues for insurers, reinsurers and managing agents in 2019

BCLP’s recent Emerging Themes in Financial Regulation seminar identified governance and accountability as one of the key regulatory focus areas for insurers during 2019. In particular, in what is one of the most significant regulatory changes of recent times, the conference discussed that insurers will have to comply with all aspects of the Senior Managers and Certification Regime from 10 December 2019. This regime will extend personal regulatory duties to almost all staff within insurers, most of whom have never before been accountable directly to the UK regulators for their personal conduct. For practical guidance, read our full article that has been published by Insurance Day here.

You can also access our full Emerging Themes in Financial Regulation publication here.