Multiple lawyers ‘can impinge on excess layer settlements’

by Kate Tilley, Resolve Editor

Layers of lawyers are not always necessary when resolving excess layer claims, says David Lloyd, claims director – Australia, for QBE 386 and QBE Europe.

He told the AILA-Queensland Law Society insurance law intensive Australian insureds’ excess layers were frequently placed in the London market and could be on a stand-alone basis or follow the form, which meant terms and exclusions of the underlying policies were incorporated.

Responsibility for claims management and defence initially rested with the primary layer but, if it was eroded, responsibility devolved to the insurers above. Mr Lloyd said underlying insurers were aware of the identity of those in the excess layers and kept them informed – “good ones do, at least”.

It was the primary layer’s responsibility to provide information for appropriate reserving. If the primary insurer failed to do so, or to settle within its limit, the excess insurers could rely on a clause giving them the ability to get involved. However, there was no contract or implied contract between the layers to enforce a duty to keep the excess layer informed.

Some insurers were “denialists”, which was dangerous because the excess market was unaware of the circumstances.

Mr Lloyd said there was a reliance on goodwill and market practice because there was no case law to establish the nature of the duty between insurers in the various layers. “There may be a duty of care owed and damages recoverable for a breach, but there’s no litigation yet,” he said.

In the US, duties and obligations existed between primary and excess layers. There was an implied duty of good faith, bad faith actions were recognised, and the excess market was in a stronger position.

Brokers needed appropriate technical skills to advise all layers of their possible exposures. Generally, if there was a loss notification in the primary layer, excess layers would be notified to protect the broker and alert the entire program.

Mr Lloyd asked whether each layer needed its own legal representation. “Is one set of lawyers OK? In the London market, it is common to have one [set] for the whole market tower.”

In Australia, it was more common to have multiple lawyers, which “could be detrimental to settlement of the loss”. “It can affect strategy and sometimes undermines the insurers’ position,” he said.

“You need open dialog between all lawyers, including market meetings and steering committees,” he said. “Tensions can arise, but steering committees can solve that.”

Different jurisdictions differed in their views on sharing reports. Mr Lloyd favoured London’s “collegiate approach”, but said there was often debate over costs sharing. There was no obligation on the primary layer to share, but it was market practice in London. “The London market has a pragmatic, market-friendly approach.” The layers have common interests, so they share. “If a claim looks like hitting the excess layers, they would be expected to contribute to the legal costs, or share on a pro-rata basis.”

Mr Lloyd said all layers should be conscious of the duty of good faith and open dialog between layers was more efficient for all involved. Whether separate firms were needed for each layer depended on the circumstances.

He suggested his presentation – “peeling back the layers” – perhaps should have been titled “peeling back the lawyers”.