How Act-as-One Provision Works

The Act-as-One provision urges the reinsurers to take identical actions so that they achieve the same goal. Throughout the complicated process of selecting an arbitration panel, conducting communications, and making decisions concerning the dispute, it is inevitable for disagreements to emerge. Reinsurance is an action where the reinsurer receives all or part of the risk covered in a policy.

Act-as-One provision reserves the reinsurer’s right to declare their claims or defenses, which doesn’t impair several liability. Several liability typically exists in most reinsurance contracts and allows the arbitration process to continue without confusion about how many arbitrators the disputing parties will nominate. Several liability is the assurance that each party is responsible only for their specific obligations, and the responsibility can’t pass on to others.

Essentially, the Act-as-One provision treats the reinsured as one party and all of the reinsurers as another party when the dispute involves more than one reinsurer. Furthermore, after the two parties each appoint one arbitrator, the arbitrators can appoint the umpire, carrying out the contractual requirements.

Example of Act-As-One Provision

In general, a provision is a supply of something. Banks need provisions against losses, and people need provisions when they leave their comfort zone and need to foresee the unexpected.

In the same way, when there are many stakeholders in a dispute, the Act-as-One provision stipulates that everybody should agree on an action that needs to occur within a specific time. This way, the best interests of all stakeholders will remain protected.

One way to illustrate the Act-as-One provision is to imagine a large family that inherits one house. Members may not have seen each other for years or even know each other. They would most likely have different ideas on what to do with their part of the inheritance. They would need to “act as one” and, therefore, appoint an arbitrator or an umpire who would have to become familiar with their issues and work to the best of everybody’s interest.

Significance of Act-As-One Provision

Clauses can have discerning ramifications for resolving any dispute and how to enforce the rights and obligations listed in the contract afterward. Many questions arise, including the following:

  • Who will be deciding the disagreement?
  • In which part of the world will it be heard?
  • How long will it take before it can be appealed?

Additionally, a judgment can be easily enforced or may need additional litigation. The answers to all of the above can have a tremendous impact on the outcome of a dispute. It can cost thousands of dollars to a single party or all parties, and it is why all involved should have a dispute resolution clause that is stated clearly in place. Act-As-One provision is a clause that is of great importance for both the reinsured and the reinsurers to save valuable time and money.