Cayman Islands: Insurance & Reinsurance 2018

Last Updated: 23 March 2018
Article by Abraham Thoppil and Luke Stockdale

Most Read Contributor in Cayman Islands, November 2018

1 Regulatory

1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?

All persons carrying on, or desiring to carry on, insurance business (including reinsurance business) in or from the Cayman Islands need to be licensed under the Cayman Islands Insurance Law. The Cayman Islands Monetary Authority ("Authority") regulates insurance business in the Cayman Islands.

1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?

Insurers are licensed by the Authority as follows:

  1. "Class A insurer" licence, for the carrying on of domestic business (i.e. the provision of insurance in respect of insurable interests of persons ordinarily resident in the Cayman Islands, or of property or vehicles in the Cayman Islands) or limited reinsurance business.
  2. "Class B insurer" licence, for the carrying on of insurance business other than domestic business (however, a Class B insurer may carry on domestic business where such business forms less than five per cent of net premiums written, or where the Authority has otherwise granted prior approval).
  3. "Class C insurer" licence, for the carrying on of insurance business involving the provision of reinsurance arrangements in respect of which the insurance obligations of the Class C insurer are limited in recourse to, and collateralised by, the Class C insurer's funding sources or the proceeds of such funding sources, which includes the issuance of bonds or other instruments, contracts for differences and such other funding mechanisms approved by the Authority.
  4. "Class D insurer" licence, for the carrying on of reinsurance business and such other business as may be approved in respect of any individual licence by the Authority.

The organisational requirements for licensees are as follows:

  1. Only companies incorporated in the Cayman Islands may be licensed as Class A or D insurers and only companies incorporated as "exempted companies" (including segregated portfolio companies) may be licensed as Class B or C insurers.
  2. Directors: Every applicant must have a minimum of two directors who are approved by the Authority.
  3. Physical Presence: Class A and D insurers are required to have a place of business in the Cayman Islands.
  4. Requirement to Appoint a Local Insurance Manager: A Class B insurer or a Class C insurer (unless it permanently maintains a place of business in the Cayman Islands) is required to appoint an insurance manager licensed by the Authority.
  5. Business Plan: Every applicant is required to file a business plan with the Authority.
  6. Capital and Solvency Requirements: Every applicant is required to comply with the prescribed level of capital requirements under the Insurance Law, 2010 (as amended) and the Regulations made under the Law, which differ depending upon the Class of licence sought.
  7. Auditor: Every applicant (unless exempted by the Authority) is required to appoint an auditor approved by the Authority.

1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?

In general, only a foreign insurer licensed as a Class A insurer is able to write domestic insurance business. In certain circumstances, the Attorney General or the Governor in Cabinet may permit an unlicensed foreign insurer to carry on domestic business.

A local insurer is free to contract for reinsurance with a foreign reinsurer (subject to the Authority's consent).

1.4 Are there any legal rules that restrict the parties' freedom of contract by implying extraneous terms into (all or some) contracts of insurance?

There are no statutory provisions that restrict the parties' freedom of contract. However, the Authority needs to approve all insurance contracts entered into by a licensed insurer.

1.5 Are companies permitted to indemnify directors and officers under local company law?

Yes. Cayman Islands companies are not prohibited from indemnifying and exculpating their directors and officers from personal liability for wrongful conduct in the performance of their fiduciary and common law duties.

However, the "irreducible core" of a fiduciary's duty, which has been held to comprise at least the duty to act honestly and in good faith, will remain despite the terms of any indemnity or exculpation provision. Accordingly, such provisions may not operate to indemnify or release a director or officer from liability for conduct which amounts to wilful default, fraud or dishonesty in the carrying out of their fiduciary duties.

1.6 Are there any forms of compulsory insurance?

There are a wide variety of statutory provisions in the Cayman Islands which impose obligations to maintain insurance coverage.

Examples of the sectors and the parties to whom such provisions apply include:

  1. Parties involved in the provision of professional services in the financial services industry such as auditors, attorneys, professional directors, liquidators, insurance brokers, persons licensed to carry on business under the Securities Investment Business Law and persons licensed to carry on business under the Banks and Trust Companies Law.
  2. Employers are required to maintain health insurance on behalf of each employee.
  3. Operators of healthcare facilities are required to maintain malpractice insurance and liability insurance coverage for the facility.
  4. Parties involved in transport operations, including operators of scheduled air services, ships registered in the Cayman Islands and users of port facilities. There are also requirements for road users to insure their vehicles.
  5. Property owners and operators are required to maintain property insurance in certain circumstances.

2 (Re)insurance Claims

2.1 In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?

Cayman Islands statutory insurance law is mainly regulatory in nature and does not generally deal with consumer protection rights.

2.2 Can a third party bring a direct action against an insurer?

Cayman Islands law recognises privity of contract. Accordingly, it is not generally possible for a third party to enforce contractual terms without being a party to the relevant contract.

However, pursuant to the Contracts (Rights of Third Parties) Law, parties to a contract governed by Cayman Islands law may expressly confer on a third party a statutory right of enforcement in respect of any provision or provisions of the contract.

2.3 Can an insured bring a direct action against a reinsurer?

The existence of any such right would depend upon the terms of the contracts between the insured and the insurer, and the insurer and the reinsurer.

2.4 What remedies does an insurer have in cases of either misrepresentation or non-disclosure by the insured?

Pursuant to the Cayman Islands Contracts Law and the common law principles of misrepresentation, where an insurer has entered into a contract of insurance in reliance upon a misrepresentation by the insured, or where there has been non-disclosure of a material fact by the insured which, had it been disclosed, would have led the insurer not to enter into the contract at all, or enter into the contract on different terms, the insurer may have a right to rescind the contract.

Further or alternatively, the insurer may have a claim for damages against the insured where it has suffered loss due to misrepresentation or non-disclosure by the insured.

2.5 Is there a positive duty on an insured to disclose to insurers all matters material to a risk, irrespective of whether the insurer has specifically asked about them?

Contracts of insurance are based upon the principle of utmost good faith. That principle imposes a positive duty on each contracting party to disclose all circumstances material to the risk to the other contracting party.

Accordingly, an insured will generally be under a positive duty to disclose to the insurer all circumstances material to the risk to be insured regardless of whether the insurer has specifically asked about those matters. A circumstance is material for these purposes if it would influence the judgment of a prudent insurer in either fixing the premium or determining whether to insure the risk at all.

Any failure to make such disclosure could provide grounds for the insurer to void the contract.

2.6 Is there an automatic right of subrogation upon payment of an indemnity by the insurer or does an insurer need a separate clause entitling subrogation?

Decisions of the English courts which have confirmed that a right of subrogation exists in respect of all contracts of non-marine insurance which are contracts of indemnity should be followed in the Cayman Islands.

3 Litigation – Overview

3.1 Which courts are appropriate for commercial insurance disputes? Does this depend on the value of the dispute? Is there any right to a hearing before a jury?

Any action for breach of a contract of insurance, including an application for a declaration, where the amount claimed exceeds $1 million, is required to be commenced in the Financial Services Division of the Grand Court. Whilst the Court does have the power, on the application of any party, to order that a civil cause of action be tried before a jury of seven persons, in practice all insurance and other commercial proceedings are heard by a judge alone.

3.2 How long does a commercial case commonly take to bring to court once it has been initiated?

As much of the commercial litigation before the Grand Court is complex, cross-border and involves heavy interlocutory applications, cases can take up to two years to come to trial. However, a relatively simple coverage dispute may take a shorter period of time.

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