The International Underwriting Association (IUA) has published a Brexit clause to help companies manage insurance contracts once the UK exits the European Union.
The intent of the Brexit Contract Continuation Clause to clarify how companies will continue to pay claims despite any business disruption caused by a situation in which adequate transitional arrangements aren’t agreed.
Currently, insurance companies that rely on the EU financial services passport to conduct cross-border business between the UK and continental Europe may not be licensed to continue providing cover, or pay claims, on existing contacts after the Brexit in March 2019.
The new clause, which was drafted by the IUA’s Clauses Committee at the request of its Brexit Working Group, allows a risk to be placed with a ‘contingent’ EU-based insurer alongside a UK domiciled insurer.
If there are Brexit issues, the contingent insurer will step in and fulfill any policy obligations that the original carrier is no longer able to cover.
According to the IUA’s director of market and legal services, Chris Jones, Brexit continues to be uncertain in both the nature of its final outcome and the UK and the EU’s future trading relationship.
Jones commented: “A number of other market clauses have already attempted to address the issue of contract continuity, but it has proved difficult drafting a solution that covers all political eventualities.”
“Another problem has been catering for the many different corporate structures, both currently present in the London Market and planned by firms as part of their Brexit contingency responses.”
“Consequently, a key concern of the IUA’s new clause has been to ensure that the legal principles underpinning the contingent insurer approach are sound and that the terminology and intent of the wording is as clear as possible.”