The term “lead underwriter” when dealing with Lloyd’s of London carries a distinct significance due to the unique structure of this marketplace. Lloyd’s is not an insurance company. As noted in The Lloyd’s Insurance Marketplace, Lloyd’s is a marketplace where multiple syndicates and insurers come together to insure risks. Each of these syndicates is made up of members (who can be individuals or corporations) that provide the capital to underwrite insurance policies.

The lead underwriter in the Lloyd’s market is usually the first or primary syndicate that agrees to underwrite a significant portion of a particular risk. This syndicate, led by its underwriter, sets the terms, conditions, and pricing of the insurance policy. The lead underwriter plays a pivotal role in the underwriting process. By setting the terms and premium for the risk, they effectively establish a benchmark for other syndicates that may participate in underwriting the same risk. Other syndicates that follow the lead underwriter’s terms are known as “following markets.” The lead underwriter’s judgment on risk assessment is highly influential and typically trusted by these “following markets.”

The concept of a lead underwriter is particularly significant in the context of Lloyd’s due to the syndicated nature of the market. A well-respected lead underwriter can attract more following markets, thus ensuring that large and complex risks can be adequately insured through the pooling of capacity from multiple syndicates. Being chosen as a lead underwriter is a testament to the syndicate’s and, specifically, the underwriter’s expertise, experience, and reputation in the market. Other participants in Lloyd’s trust the lead underwriter’s ability to accurately assess and price risks. This trust is crucial because following underwriters often rely on the lead’s assessments due to the complexity and bespoke nature of risks covered in Lloyd’s market.

In the event of a claim, the lead underwriter also often takes a central role in the coordination of the claims process. They may negotiate settlements or lead discussions on behalf of the other underwriters involved.

An example of how a lead underwriter can impact the handling of a claim and whether the claim is paid or challenged is found in the case from yesterday’s post, “What Does Physical Loss Mean in Kentucky? Can Temporary Delay Constitute Physical Loss?” While researching the various motions, I came across an exhibit, which is an email admitting that coverage for the extra expense will be paid up to the sub-limit but that “the lead” had a different view on the coverage and would not honor the remainder of the claim stating the reasons for denial:

First and foremost the lead has confirmed cover attachment under the extra expense language. This is limited to USD 1m in the aggregate and they are satisfied that the recoverable claim exceeds this sum. As a result we will submit a formal request for them to agree to pay this amount.

It is possible they will require a payment authority or form of acceptance but we will revert as and if this is required in order to collect those funds.

We then discussed the balance of the claim and how the policy can respond to the loss in full. We primarily focused on the marine consequential loss insurance section of the policy. This was noted to provide cover up to USD 3m as a result of delay in the delivery of the product. Despite our assertion that coverage is therefore in force hereunder, the leader has countered our opinion. Firstly, it was deemed that this section of cover only applies to the specific risks listed in that section. Under the ‘risks covered’ clause they accept that this includes delay, however this clause ends with the language ’caused by:’ and then lists the specific triggers that are required in order for coverage to be operative. We went through each of the risk clauses and the lead concludes that the situation which led to these expenses is not described. As a result, this section of the policy was discounted as providing any further cover.

The lead also pointed out that no shipments which were not already on the water were delayed. They were delivered on time, just by another means. No identified and insured peril has occurred to those rail shipments from the warehouse, and in any event delay is not an insured peril under the policy except for the additional cover for delay as described and provided in the extra expense language. The limit for which they are already agreeing to settle.

We then discussed the sue and labour clause in both the marine consequential loss insurance section of the policy as well as the main body of the wording. The leader reached the same conclusion for the consequential loss section, in that the situation encountered was not encapsulated within any of the descriptions of the ’caused by’ section, and therefore any cost incurred did not avert or minimise a loss under that section, because it did not provide cover in the first place. For these same reasons the ‘minimising losses’ and ‘avoidance in delay’ sections of the policy were also discounted.

Finally we reviewed the sue and labour section of the main body of the policy. The policy is written on American Institute Cargo Clauses 328-10 but with clause number 3 amended to read ‘against all risk of physical loss of or damage to the subject matter insured from any external cause’. When referring to these AICC clauses there is a delay warranty under 13. C which excludes losses caused by delay, whether the delay is caused by an insured peril or not. The leader feels that the losses presented from the barge shipments are caused by delay and are therefore excluded entirely under the policy. The only section of the policy that extends cover for delay is the extra expense clause, which they accept provides coverage and the policy should therefore respond up to the extended limit described therein of USD 1m. The expenses arising by sending the product by a different mode of transport are not delayed, they are not lost or damaged, and the expense to ship them by rail has not averted or minimised a loss under any section of the policy as described above. Hence no sue and labour application can be applied.

It is therefore their current position, based upon the known facts to date, that this claim will be limited to USD 1m of extra expense cover.

We would therefore seek your instructions please as to acceptance or otherwise of this sum, alongside any additional information we can offer that will allow us to ask them to reconsider the above.

The email is crystal clear that the leader had a different view of the claim and believed that the remainder of the coverage was not afforded despite others with Lloyd’s having a different opinion. Eventually, the trial court and appellate court ruled that the lead’s coverage determination was correct.

The lesson is that when dealing with Lloyd’s, it is important to determine who the lead underwriter is on a claim. It is also important to realize that many of the people working with the lead may have a significant amount of experience and understanding of how the insurance product works and varies between policy forms.

For those involved with lawsuits against Lloyd’s, I suggest reading Lawsuits Against “Lloyd’s of London” are Often Wrongly “Named.” For a historical anecdote about Lloyd’s, I would suggest reading Martin Luther King and the Lloyds of London Rescue of the Montgomery Bus Boycott.

Thought For The Day  

The coffee shop is a place for solitary reflection, a place to gather thoughts, to read, to write, to ponder the events of the day.

Edward Abbey