1. INTRODUCTION

1.1 Binding authorities and line slips are not themselves contracts of insurance or reinsurance.1 They are both agreements under which underwriters authorise a third party to accept risks on their behalf, ie they are contracts for insurance or reinsurance.2 Although both are defined terms in Lloyd’s rules (see paragraphs 1.24 and 1.80 below), a binding authority or “binder” is a term commonly used to describe a document evidencing a grant of authority by insurance companies or Lloyd’s syndicates to a “coverholder”, who will not be a fellow insurer, but a broker or other intermediary. The binder will typically authorise the coverholder to accept specified classes of risks on the insurers’ behalf up to certain limits, usually without prior reference to the insurers. The binder may also authorise the coverholder to carry out other functions on the insurers’ behalf, such as issuing contracts of insurance and settling claims. At Lloyd’s particularly, the binder will be negotiated by a Lloyd’s broker through the use of a “slip” presented to underwriters for their agreement. The Lloyd’s broker may be the coverholder itself or simply be negotiating grant of the binder on behalf of a non-Lloyd’s broker or intermediary. Binding authorities are also a form of outsourcing which means that they are captured by FSA, Solvency II and TUPE legislation and rules which relate to outsourcing arrangements.