The 100% Slip That Wasn't
A Lloyd's broker is renewing a £48m commercial property and business interruption programme for a UK food manufacturer with 14 production sites. The risk is offered on an open-market, subscription basis to five carriers: Syndicate 1234 as leader at 35%, two further Lloyd's syndicates at 20% each, a London company-market insurer at 15%, and the London branch of a European insurer at 10%. Six hours before the 1 April inception the slip is 100% subscribed. The European branch, however, signs its 10% line 'subject to satisfactory fire survey of the Manchester site, report to be received within 60 days of inception'. The client's insurance manager emails asking whether the whole programme is fully in force from 1 April and what happens if the Manchester site burns down in May before the survey is done.
1. Explain the effect of the European branch's qualified signature on its own 10% line and on the remaining 90% of the programme.
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The programme is a subscription contract, so each carrier is severally liable for its own proportion only - there is no joint liability and no single contract with all five insurers. The four carriers that signed unqualified (35 + 20 + 20 + 15 = 90%) have agreed complete and final terms and are bound from 1 April.
The European branch has not. 'Subject to survey' is normally a condition precedent to the attachment of its line: the 10% does not incept until the survey is satisfactory or the condition is waived.
Contract certainty has therefore not been achieved for the full order at inception. Under the Market Reform Contract discipline that is a recorded issue to be escalated and closed, not glossed over. The broker should tell the client plainly that 90% is bound and 10% is not, diarise the 60-day window, and press the branch either to complete the survey or to sign clean.
2. A fire destroys the Manchester site in May before the survey has been carried out. Does the European branch's 10% respond, and how should the broker advise the client?
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On the wording as signed, probably not. A 'subject to survey' qualification is usually construed as a condition precedent to attachment, so until the survey is done the branch has not assumed the risk and no cover exists under that line for a May loss.
The other four carriers remain liable for their 90% - on a £48m total loss that is £43.2m - because each is severally liable for its proportion and their lines are unaffected by another insurer's condition.
Before conceding the point, the broker should check two things:
- whether the branch caused the delay (for example by never appointing a surveyor), which can amount to waiver or estoppel;
- whether the qualification was in substance a condition subsequent, leaving cover in place until the survey fails.
The client should be told of the gap, pressed to give survey access, and reminded that a market placement does not mean every line behaves identically.
3. The leader decides to settle the claim at £7m. Outline how that decision is made across the market and what happens if one follower refuses to accept it.
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The leader, Syndicate 1234, takes the claims lead: it appoints the loss adjuster, investigates, sets reserves and negotiates.
Followers are then carried by the market's claims agreement / leader-follows practice in the MRC wording. Subscribing insurers agree in advance to accept the leader's settlement on coverage and quantum within agreed parameters, so a follower that simply dislikes the figure is generally still bound to pay its proportion.
A follower can step outside only where the decision falls outside the agreement - an unresolved coverage dispute, fraud, a settlement above a referral threshold, or a sanctions issue. That goes to the market's claims dispute process, not to the insured.
Each insurer pays its own share, several not joint. Note that the Lloyd's Claims Scheme is a different thing: it protects policyholders where a syndicate cannot meet a valid claim; it is not the leader-follows agreement.