Ian Pelham, Senior Vice President of InSolutions Ltd, England, explains that many US companies face coverage issues when they acquire a UK subsidiary or expand operations into the UK market. This two-part article helps American policyholders understand how to find their insurance coverage in the legacy London Market for historic US risks and employers liability claims in the UK.
Many US organizations encounter the UK insurance market either through historic London market placements insuring North American risks back to the 1940s, when they acquire a UK subsidiary, or decide to expand into the UK market.
In this paper, we will review two aspects of the UK insurance market and advise how to undertake research to locate the responsive legacy coverage. Part I addresses the legacy London market that insured historic US risks. Part II discusses the historic domestic UK market which is dominated by legacy employers liability (EL) claims.
The legacy London market
From the early part of the last century the London market has played a key role in underwriting US business. The market is made up of underwriters at Lloyd’s of London and the various insurance companies doing business in the London market. The London market had a strong historic presence in US commercial insurance and for this reason it was negatively impacted by long-tail liability exposure faced by US industry in respect of asbestos and pollution.
In this paper we are only going to discuss the pre-1993 Lloyd’s market. As a result of the potential collapse of the legacy London market due to massive exposure to historic US asbestos and pollution claims, a plan called Reconstruction and Renewal (R&R) was developed with the approval regulators. Under the plan all Lloyd’s business on most pre-1993 non-life policies was reinsured by a specially established reinsurer called Equitas Limited (Equitas). Equitas claims are now handled by Resolute Management following a deal with the Berkshire Hathaway Group in 2006.
Lloyd’s of London is a market place, not an insurance company
Pre-1993, wealthy individuals known as “Names” would place capital with an underwriter who would form a syndicate. These syndicates would then accept a percentage of a risk.
A typical pre-1993 excess liability policy issued to an American client could be underwritten by say 50% Lloyd’s syndicates and 50% London market companies. It should be noted in respect of the historic London market, placements are several and not joint.
Placing a risk
The Lloyd’s broker will have received a package of information from the US broker which would normally include:
- Cover required and limits.
- Loss record.
- Details of underlying coverage.
- Details of client’s business.
The London broker would from this information prepare two types of documents:
- Slip – which typically includes:
- Cover required – for example, excess umbrella.
- Wording to be used (if known), for example LRD1960.
- Insured name.
- Limits including deductible(s).
- Standard clauses in short form, such as NMA1685 (NMA stands for Non Marine Association) – Seepage and pollution clause (from 1960 on).
- Space for lead underwriter to indicate their quote.
- An exhibit or exhibits including all the relevant underwriting information.
Once prepared the broker would take the documents into Lloyd’s and present them to an underwriter for the relevant class of business. If the underwriter agreed to insure the risk, they would then write their quote on the slip along with any amendments required. The broker would then return to the office and forward the terms to the US. If the client accepted the terms, the broker would then take the slip to other Lloyd’s syndicates and the London company market to fill the remaining unsubscribed portion of the slip until 100 percent of the cover was obtained.
The first underwriter to sign is known as the “lead underwriter” and the balance of the market are the “followers”. Once the broker has a full market, they would prepare a cover note.
After the cover note was issued and the client had received their invoice, the slip would be submitted to the various signing offices:
- London Policy Signing Office – LPSO – Lloyd’s market.
- ILU – Institute of London Underwriters – originally marine companies.
- PSAC- Policy Signing and Accounting Office – non-marine.
- LIRMA - London International Insurance and Reinsurance Market Association which was formed by the merger of ILU and PSAC (since 1998 is called IUA).
The only other type of London policy is known as a Company’s Collective. This was for companies who were not members of one of the signing offices.
It should be noted that policies were issued in triplicate, with one each for the UK broker, the US broker and the insured. Unfortunately, it often appears that the US broker would not pass on the London policy to the client, but instead issued their own certificate. US issued paper is regarded by London underwriters as only secondary in nature as proof of a placement.
Legacy London market insurance archaeology
To present a claim the insured and its representatives need to obtain copies of the available slips and policies. These need to be the London-issued documents and not US Broker paper.
Any request for documents should include:
- Correspondence files.
A specialist UK archaeologist
The assistance of an insurance archaeologist can be very helpful because they:
- Understand which historic US brokers typically dealt with specific historic London brokers.
- Can often recognise determine the historic broker from a policy number.
- Will understand the terms referenced in a short form slip.
- Knowledge of London market broker mergers.
- Have contacts in the London insurance market to obtain secondary evidence.
- Are able to offer a practitioner’s insight.
If the original slip and/or policy are not available, other sources of evidence can assist. These include:
- Broker correspondence files, which may contain partial unsigned slips, copies of cover notes and certificates.
- Historic claims records can provide an insight into the underwriters.
- US broker cover notes, or certificates will list the company market and the Lloyd’s as a block percentage.
- Some of the London historic company insurers hold records and can be approached.
- Lloyd’s syndicates kept underwriting cards and if there is evidence of Lloyd’s placements, these can be requested to prove a proportion of the Lloyd’s market.
- The US federal government, especially the Department of Defense, can be a useful source of insurance records as contractors had to provide evidence of cover.
Legacy London market summary
- London market placements are several and not joint.
- US issued certificates or covernotes. These are regarded as secondary evidence at best and will not be accepted as proof of placement.
- London prepared slips and policies are the gold standard of evidence.
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