Those of a certain vintage will recognise that ‘Difference in Conditions’ (DIC) clauses have been around for quite some time. Equally, there is an acknowledgment that there isn’t a singular definition and that some versions require mental gymnastics of Olympic standards. Within the context of Management Liability (ML), their emergence is a relatively recent event and, whilst they are generally considered to be a good thing, there is by no means a standardised approach, or outcome.
Broadly, and within the ML framework, DIC clauses apply to a successor policy and potentially allow a claim to be handled under the policy that was replaced. They often purport to cover certain claims that the new wording may not if such claims would, or might, have been covered under the superseded policy. Whilst it sounds straightforward, allowing such a ‘look back’ provision can never be a perfect science, and it might be very difficult to assess and predict the full impact of DIC provisions for a variety of reasons, including:
- a ‘pick and mix’ solution is never easy: policy definitions and provisions intertwine, and the full understanding of a provision often depends on other provisions which work with it. Picking up particular bits and slotting them straight into another policy without any attendant qualifications and limitations in order to achieve an unambiguous result will constitute a real challenge. There is a risk that accompanying limitations and qualifications clash with, or have an adverse effect on, provisions of the following policy;
- D&O claims are rarely simple and obedient creatures. ‘Allocation’ is a complex process which manages the costs between covered and uncovered matters and covered and uncovered parties, and this process can only develop over time, often months and years. Outcome assessments are rarely clear and can be impossibly difficult to make in the short term;
- separating the cover from the process may not always be easy. Claims may be declined because of non-compliance with a statement of fact, or e-trade transaction criteria, making backward analysis difficult. Complications may also arise around conflicting claims handling conditions and their impact on policy provisions. These can vary considerably across contracts and can be punishingly severe in some;
- logistics, perspective and intent: in the event of a cover dispute with the current insurers, it is unlikely that the superseded market will be minded to provide a view on what the position would be if the organisation that is insured was still with that market.
Even absent a DIC clause, there has never been any obvious obstacle to moving to a stronger policy solution, but there was often tension around doing so, borne partially of legacy beliefs on continuity and tighter contract language. Paradoxically perhaps, DIC clauses have emerged as the case for their existence has weakened, with the expansion of cover and more generous language making a move of insurer a lot easier than it used to be.
As with most aspects of financial lines, careful analysis is required. Examination of the market evidences that most markets do not embrace them as a standard approach and that their benefit may be more specious than real. Where they do exist, they can never be a precision instrument. For the underwriter, the balance is a difficult one to achieve. Mechanically, they will always be a challenge, but tactically too. To provide unqualified DIC might mean endorsing a prior carriers ambiguous contract architecture and it’s always difficult to get inside the mind of a competitor. However, they can give some comfort in the absence of a forensic analysis of a 30 plus page policy wording. The reality might be that more comfort can be found in a well-constructed contract from experienced underwriters, free from challenging claims management language. So, possibly less “let’s have a look at what you could have won!”, and more a case of “super, smashing, great”.