Understanding the Intermediary Clause in Legal Agreements
Definition & meaning
An intermediary clause is a provision found in reinsurance agreements that specifies the intermediary responsible for negotiating the terms of the agreement. This clause typically ensures that all credit risks are transferred to the reinsurers. Furthermore, it may state that payments made by the cedant (the party transferring risk) to the intermediary are considered as payments to the reinsurer. Conversely, payments made by the reinsurer to the intermediary are not recognized as payments to the cedant until those funds are actually received by the cedant.
Legal use & context
Intermediary clauses are primarily used in the context of reinsurance agreements. These agreements are common in the insurance industry, where one insurance company (the cedant) transfers a portion of its risk to another (the reinsurer). Understanding intermediary clauses is crucial for parties involved in such agreements, as they dictate the flow of payments and the assumption of credit risk. Users can manage these agreements effectively using legal templates available from sources like US Legal Forms, which provide professionally drafted documents tailored to specific needs.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A health insurance company (the cedant) enters into a reinsurance agreement with a reinsurer to cover high-cost claims. The intermediary, a reinsurance broker, negotiates the terms. The intermediary clause specifies that payments from the cedant to the broker will be treated as payments to the reinsurer, ensuring that the reinsurer receives funds promptly.
Example 2: (hypothetical example) A property insurance company uses an intermediary to negotiate a reinsurance deal. The intermediary clause states that the reinsurer's payments to the intermediary do not count as payments to the property insurer until the insurer receives the funds directly.