UK: The Streamlined Market - Electronic Claims Files

Last Updated: 5 July 2007
Article by Colin Croly and David Abbott

After some false starts the market is embracing electronic platforms. RI3K is reported to be handling an increasing amount of business, and the G6 Group at Lloyd's is going live with its "peer to peer" electronic system.

Initially, the focus was on placing, however it has been recognised that dealing with claims electronically can also increase efficiency of the claims process. As well as reducing the need to take claim files around the market manually, if underwriters can simultaneously review claims electronically the process will speed up. The Electronic Claims File (ECF) system provides Lloyd's managing agents with a single integrated service to manage the process for agreeing claims and storing claims-related documents.

ECF is the combination of the Insurers Market Repository (IMR) and Claims Management Agreement & Settlement (CLASS). This enables claims file documents to be submitted electronically and shared by subscribing insurers, whilst CLASS provides users with access to financial data and claims processing. ECF allows brokers to supply the claims files to all insurers on risk, electronically, at the same time. In order to participate, managing agents and brokers must agree the Repository Rules (the Rules). The Rules govern the parties' agreement to transact claims electronically with each other without the use of paper files. A party who has agreed the Rules may process electronic claims with any other party who has also agreed the Rules, meaning that each organisation only has to agree the Rules once. The Rules cannot be amended or tailored to suit individual organisations.

The Rules grant, in relation to each document lodged on ECF, a non-exclusive perpetual worldwide licence to each user to view, access, copy or otherwise use that document in the ordinary course of business. This is necessary as, in electronic systems such as ECF, access to documents needs to be wide in order to prevent the business process being stalled by legal wrangles.

The Rules highlight that the ECF is to be the insurers' file. This will almost certainly be a step forward for the Lloyd's market. It enables insurers to keep all documents shown to them. As it is the insurers' file, the documents are within their control. They may, therefore, be used and disclosed by the insurers if any dispute arises. Previously, if brokers (the agents of the insured) kept the documents, there would often be an issue as to how underwriters would obtain those documents. Although in Goshawk v Tyser (2006) it was confirmed that there is an implied term that the insurers can see all claims and premium accounting documents that have been previously shown to them, difficulties and uncertainty can still arise in the process of obtaining documents. The Rules should cut through this by giving ownership of the file to insurers and placing the documents within their reach.

Generally speaking, privilege will be maintained where a document has obviously been disclosed by mistake. The Rules reinforce the maintenance of privilege (where it exists) and confidentiality and give the right to prevent further disclosure.

The Rules state that where any document which is privileged or confidential becomes viewable due to an IMR system failure and would not otherwise be viewable but for that failure, it is agreed that no confidentiality or privilege in that document is waived by reason of that failure. Further access to that document may be denied. Also, where a document has been mistakenly lodged, the Rules state there is no waiver of privilege or confidence and again, further access to that document can be restricted.

However, although documents may be kept out of court or arbitration, real confidentiality vis à vis those who saw the document would be lost. It goes without saying that access to documents (such as lawyers' reports) which are for the insurers' eyes only must be restricted.

On occasion, the interests of the insurers on a risk may divide, either through disagreement or the merits of their legal position may differ. In those circumstances it would seem unworkable that the insurers share the same system. The ECF Systems Processes and Procedures guide, which explains the workings of the system, rightly suggests that in those circumstances a return to paper be made.

The Rules also address the potential problem that, when the insurer provides its response to a claim, the response buttons selected by an underwriter using ECF do not match the response code received by brokers. Sensibly, the Rules dictate that underwriters will comment in the 'public comments field' provided, confirming the nature of their response and describing any action to be taken. They also dictate that users should respond based on those comments and not simply the basis of any response code received. This raises an important point: electronic systems which rely only on codes to indicate responses pose potential danger of confusion. Such action could set off a whole chain of responses with legal consequences. Enforcing clarity in this way should ensure that there is less likelihood of a dispute arising in this area. In addition, it is important for the insurer to record reasons for its actions, should it become necessary, pursuant to a follow settlements clause for example, to justify those actions to its reinsurers.

ECF, via the Rules, also seeks to clarify who has seen what and when. It makes clear that a document must be lodged in a certain way with the appropriate references or it will be taken that the recipient does not have notice of that document. Conversely, where a document is lodged in the correct manner, the underwriter or recipient cannot claim that they have not received that document by virtue of not having read it. If documents are not to be scratched there must be some means of determining whether they have been read. This seems the only practical solution. However, in all electronic systems there is a danger of the insurer receiving a "data dump" which seeks to overwhelm it with information. In any dispute the fact that an insurer has been swamped with information is not likely to be looked upon favourably by a court or panel and may lead to the presumption that a particular document has been read under pressure. For certainty, important information (helpful or not) should be highlighted.

Importantly, ECF provides a repository of documentation which shows what has been shown to the insurer and details the claims process precisely. An increase in evidential certainty means the parties are more able to rely upon and have certainty in their contract. The benefit of electronic document retention will certainly be felt if a dispute occurs. Also, it is likely in any dispute that an order for disclosure of electronic documents will be made if those documents are not disclosed voluntarily. If those documents are hard to retrieve (for example they are on corrupted back-up files) the process can be extremely expensive for the retrieving party. Storage in ECF negates this possibility. Further clarity from electronic evidence can also be provided by the width of disclosure which may embrace metadata, which is the information behind an electronic document (such as previous amendments, time of production, formulae behind Excel spreadsheets and so on).

The ECF system has been recognised by Lloyd's as something which must happen. It will assist in bringing certainty and efficiency to the market. There may well be wrinkles, but as long as all parties are aware of and willing to work around them and their practical and legal ramifications, they should be ironed out.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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