The Principles of Reinsurance Contract Law (PRICL): In Search of Legal Certainty in Reinsurance

Prof. Dr. Helmut Heiss*  & Marta Ostrowska**

Contract Uncertainty in Reinsurance

It is commonly known that reinsurance contracts differ substantially from insurance contracts. For this reason, in most civil law jurisdictions, reinsurance contracts are clearly excluded from the scope of insurance contract regulation, and government intervention in the reinsurance relationship is kept to a minimum. The lack of statutory law on reinsurance matters, including reinsurance contracts, has its pros and cons. On the one hand, parties to a reinsurance contract are free to decide both on the content and the form of their contract. In practice, it allows them to avoid long contract negotiations and activate reinsurance coverage immediately after the need for reinsurance arises. The current culture of forming reinsurance contracts is commonly known as “deal now, details later”, meaning that the contract takes effect once the essential terms are agreed on, whereas the details are decided at a later stage after conclusion of the contract.

Although this way of concluding contracts may be considered business friendly, it is not advantageous from a legal point of view. The fast-tracked conclusion of contracts, often drafted with little or no legal assistance, creates a considerable degree of legal uncertainty. The uncertainty concerning the contractual terms results in disputes, whose resolution it also significantly hinders. When the parties to a reinsurance contract face a dispute and are unable to reach an amicable agreement, the dispute must be resolved by a court or an arbitration panel, meaning that a ruling will be handed down based on contract interpretation. Given the way reinsurance contracts are formed, it comes as no surprise that the judges sometimes find the contracts incomprehensible and ambiguous. What adds to these difficulties is the cross-border nature of reinsurance business. Besides the general contract rules (on e.g. conclusion, validity, interpretation or the existence of implied terms) applicable to reinsurance contract, the recognition and interpretation of reinsurance customs also varies among jurisdictions. Therefore, depending on the law of the dispute, the outcome will often be different.

The PRICL – The Way to Restore Contract Certainty in Reinsurance

In order to address these problems and in response to market demand, the research project called ‘The Principles of Reinsurance Contract Law’ (PRICL) was launched in 2016. The Project is led jointly by Prof. Helmut Heiss (University of Zurich), Prof. Martin Schauer (University of Vienna) and Prof. Manfred Wandt (University of Frankfurt am Main) and is being conducted in collaboration with professors from a large variety of countries, major market stakeholders (direct insurers and reinsurers) and the International Institute for the Unification of Private Law (UNIDROIT) in Rome. The aim of the Project is to create uniform default rules of reinsurance contract law and standardised terminology to assist in the consistent interpretation of reinsurance contracts at a transnational level.

The PRICL as drafted so far consist of 5 chapters containing general and reinsurance-specific rules accompanied by explanatory notes (Comments) and examples (Illustrations). Chapter 1 addressing general rules explains that since the PRICL are focused on issues specific to reinsurance, they do not touch upon general contract law matters. For this reason, it is essential that the PRICL are applied together with the UNIDROIT’s Principles of International Commercial Contracts (PICC). Chapter 2 deals with the mutual duties of the contracting parties, including follow-the-settlements and follow-the-fortunes clauses (both widely discussed in the context of COVID-related business interruption claims). Chapter 3 provides for remedies in the event of a breach of contract. Chapters 4 and 5 govern loss aggregation (key aspect of the reinsurance disputes related to the 9/11 losses) and loss allocation respectively. Clearly, the Chapters do not deal with all aspects of a reinsurance relationship. The PRICL intend to address only the areas requiring clarification and unification.

Application of the PRICL to Reinsurance Contracts

The PRICL will only foster contract certainty if they are applicable to the contract at hand. However, their application is not implied. The PRICL are not meant to be implemented at national level and work as a national or international binding law. Rather, the PRICL constitute a private codification (non-state body of law) and are intended to serve as non-binding soft law. The parties to a reinsurance contract may choose the PRICL as the law governing their reinsurance contract. Although the decision in favour of the PRICL as the governing law should be enough to manage the contractual relationship between the parties, it may not suffice for the PRICL to be accepted as an appropriate reference based on which a dispute may be resolved. In this case, the effectiveness of a choice of the PRICL as the governing law will depend on whether or not it is combined with an arbitration clause. If the reinsurance contract concerned includes an arbitration clause, the dispute will be entrusted to arbitration, which in most cases follows the UNCITRAL Model Law on International Commercial Arbitration (1985/2006). The Model Law allows the parties to choose non-state principles (“rules of law”) as the applicable law to govern the dispute. According to the explanation provided, the PRICL fall within the scope of the meaning of “rules of law” and may, therefore, supersede national law, including its mandatory provisions. The same is not true, however, if the reinsurance contract lacks an arbitration clause. Since a court cannot refer to a non-state body of law, the PRICL incorporated into the contract will be treated as contractual terms, which will always be superseded by mandatory national contract law. In other words, the PRICL would only replace non-mandatory default rules in national contract law. Since, however, reinsurance contract law contains hardly any mandatory provisions, it is also possible to effectively apply the PRICL to a contract lacking an arbitration clause.

Publication of the PRICL

The most recent version of the PRICL was published in November 2019 and can be accessed freely at the Project’s website and via UNIDROIT’s website. However, this publication does not represent the final version of the PRICL. The Project is still ongoing and has recently been further extended until July 2023. It is expected that the final PRICL will be published after the Project ends in 2023.

The PRICL Project’s official website:

For more information, see:

Heiss, H., From Contract Certainty to Legal Certainty for Reinsurance Transactions: The Principles of Reinsurance Contract Law (PRICL), Scandinavian Studies of Law, vol. 64, 2018, pp. 91 ff.

Heiss, H., The Principles of Reinsurance Contract Law: an optional instrument of transnational reinsurance law, 25 Uniform Law Review 2020, pp. 1 ff.

Kuitunen, L., Principles of Reinsurance Contract Law Project – Enhancing the Value of Reinsurance Cover – Viewpoint of an Industry Practitioner, 25 Uniform Law Review 2020

Cerini, D., Duties and remedies in the Principles of International Commercial Contracts (PICC) and the Principles of Reinsurance Contract Law (PRICL): notes for a comparison, 25 Uniform Law Review 2020

Bork, K., Wandt, M., The modern Guidon de la Mer: the Principles of Reinsurance Contract Law (PRICL), VersR, vol. 23, 2019, pp. 1468 ff.

Keywords: reinsurance, contract, legal certainty

(*) Chair for Private Law, Comparative Law and Private International Law at the University of Zurich, Of-Counsel at mbh Attorneys at Law and Founder of the PRICL Project

(**) Researcher at the University of Zurich, Faculty of Law and Secretary-General of the PRICL Project