Special Clauses and Endorsements

by John F. Langen*

       This chapter is written to acquaint the reader with the basic intent of the following clauses: Follow-the-Fortunes, Losses in Excess of Original Policy Limits, Extra Contractual Obligations, Aggregate Extension, Interlocking, and the Guaranty Agreement, often referred to as the Cut-through Endorsement. The contractual language currently used in the U.S. marketplace will be illustrated and analyzed, with problem areas highlighted. The clauses and endorsements herein are examples only and are not offered as holy writ. Moreover, there are various clauses readily available in the industry to express the intent of the parties. Nothing can replace the art of proper contract drafting with a full understanding of the clauses employed.


Follow the Fortunes

     Intent. Treaty reinsurance was not developed in a buyer-or-seller- beware environment, but rather with the intent that both parties could develop an honorable and profitable relationship. Historically, the industry has relied upon the basic principles of utmost good faith (uberrima fides) and follow-the-fortunes. The concept of follow-the-fortunes originated during the early history of insurance. At that time, underwriters agreed to share in the profits or losses of merchants as they conducted their trade around the world. While the use of the Follow-the-Fortunes clause can be traced to more than a century ago, it continues to generate considerable discussion in current contracts.

     Although the concepts of utmost good faith and follow-the-fortunes work in tandem, only the latter will be discussed here. The intent of the follow-the-fortunes concept is illustrated by the following clause from a pro rata treaty.

* Senior Vice President, Alexander Reinsurance Intermediaries, Inc., One Landmark Square Suite 2101, Stamford, Connecticut 06901. An autobiography appears at the end of the chapter.

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