Contact Insurance - Consideration, Fronting
Contact Insurance - Consideration, Fronting
Generally, consideration is not an issue which will concern the parties to ARPI. The premium passes from the assured and the insurer agrees to provide cover according to the terms of the policy. However, there are some exceptions.
Fronting
On occasions, consideration may not be apparent on the face of the contract - for example in fronting arrangements. As we have seen, such arrangements are common in global programmes and, indeed, US insurers may be obliged to use fronting companies within individual states. Typically, the local insurer will pass on 100 per cent of the risk to the all risks property insurer and, indeed, the claims may be settled directly between the original assured and the reinsurer. Certainly, the local insurer will receive some form of payment for allowing its name to be used. Is the local insurer providing any consideration? It is not paying claims. The insurer is, however, allowing its name to be used on the policy and, legally, it is still liable for the assured's claims in the event of the all risk property insurer (now reinsurer) becoming insolvent.
Problems do sometimes arise where an intricate pattern of cross-guarantees are provided, the effect of which is that the local insurer can never be liable in any circumstances for the claims. This causes problems not only in respect of consideration passing between the local insurer and the insured but also whether the local insurer has a (re)insurable interest or, indeed, whether it has suffered a loss capable of supporting the reinsurance contract which is a contract of indemnity.
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