Reinsurance Considerations with Captive Insurer Claims Handling

According to Lynn Sheils, general counsel of EWI Reinsurance, under the notice clause, the cedent must notify the reinsurer when there is a claim that may fall within the reinsurance. Notice has to be given when there is a reasonable possibility of reinsurance being involved. Under the late notice cases, the courts have been fairly generous to cedents relative to affording them reinsurance coverage, unless the reinsurer can prove that it has been prejudiced by the lack of notice, which means tangible economic harm.

Similarly, with the claims cooperation clause, the courts have said that the reinsurer still has a duty to pay the claim unless it has been prejudiced. It is difficult for the reinsurer to show prejudice with traditional commercial insurers; however, with captive insurers, it may be easier to show this prejudice if the captive is not behaving like a traditional insurance company in its claims handling.