The new Lloyd’s Claims Lead Arrangements (CLA) and accompanying guidance are the biggest change to Lloyd’s claims handling since 2010.
Here are the key features:
- The new rules apply to ALL claims from 1 June 2023: With the exception of SCAP, satellite and term life claims, the new rules apply to all claims transactions on undetermined claims from 1 June 2023. Existing contract references to the Lloyd’s Claim Scheme now point to the CLA.
- New financial thresholds for a ‘complex’ claim (needing a Lloyd’s lead and second lead):
First party: GBP 2m or equivalent (for Lloyd's share)
Third party: GBP 1m or equivalent (for Lloyd's share)
Non-proportional treaty reinsurance: GBP 5m or equivalent (for Lloyd's share)
The triage question for leads is: “do I reasonably believe the insured is more than 50% likely to claim more than the threshold amount from Lloyd’s syndicates?”… not “do I believe underwriters will ultimately pay more than the threshold amount?” or “do I believe the insured will claim more than the threshold amount from all insurers?”.
- Three non-financial factors create a ‘complex claim’: (1) actual, pending or likely dispute with the policyholder; (2) damages which are extra contractual (e.g. punitive damages) or excess of policy limits (e.g. bad faith claims); and (3) allegations of regulatory breaches.
- Dynamic triage: Leads must keep under review whether a claim is ‘complex’. The most significant factor to consider is “whether a second lead will add value”.
- Ex-gratia, commutations and recissions still need all syndicates’ prior agreement
- ‘Leading your own slip’ on claims? This is discouraged. Where slips on the same layer are on “substantially the same terms”, each leading Lloyd’s syndicate shall “use best endeavours” to agree a single Lloyd’s lead and second lead across the slips but “managing agents are not expected to expend undue time and resource on this”.
- Leads must still act in followers’ best interests: This central premise is unchanged. There is a new dispute resolution procedure if managing agents disagree about whether a lead can act in the followers’ best interests.
- Leads’ liability cap is increasing: Lloyd’s leads’ liability to Lloyd’s followers from 1 Jan 2024 is capped at GBP 5m per CLA claim. The aggregate annual liability limit remains GBP 10m.
- Lloyd’s dispensation: Managing agencies can now apply to Lloyd’s Head of Claims for dispensation from the CLA.
- New guidance on who the Lloyd’s lead and second lead are when the slip is silent: This applies both to slips written direct and under delegated authority. On co-lead binding authorities (i.e. where a coverholder writes a risk using security from two or more binders), managing agents should try to agree a co-lead claims agreement, failing which there is a default regime.
The new CLA continues the market trend of reducing the number of handlers per claim, and Lloyd’s accompanying guidance addresses a range of challenging market scenarios. For more information, contact our expert team.