The Pool is the result of an agreement ("the Pooling Agreement") among the Clubs in the International Group to share all claims which exceed an agreed figure ($5 million in 2000) and thereby provide each other with a working layer of reinsurance at cost. The Pool is in turn protected by excess of loss reinsurance purchased collectively by the Clubs.
The Pool operates very simply. No premium changes hands. Any Club incurring a loss likely to exceed its retention must give notice to all the members of the Pool, and when payments with respect to that claim have exceeded the Club's retention, the Club can bill the other members of the Pool by circulating a "Recovery Statement" showing the amounts due from each Club. Clubs are expected to pay within three weeks of receiving such a Recovery Statement, except if the claim is denominated a "large claim" in which case Clubs are expected to pay their share within 48 hours, provided the appropriate notice has been given.
It is not open to any Club to "second guess" another Club's handling of a claim. The only substantive objection which can be raised is that the claim is not poolable (i.e, it is outside the scope of the Pooling Agreement.)
The percentage contribution which each Club is expected to make to claims on the Pool varies from year to year. The Pooling Agreement contains a formula which takes into account the proportion which each Club's premium, tonnage and claims on the Pool bears to the Group as a whole. The ratio between each Club's payments and receipts is also factored into the calculation. A provisional share is calculated for each Club prior to the start of each insurance year and is subsequently adjusted as premium and tonnage figures are finalized.
The West of England Club has been charged with the
responsibility of keeping the statistics for the Pool and calculating
the Clubs' contributing percentages. Their work is audited every year
by Ernst & Young.
(1) As a member of the International Group Pool, each Club has an obligation to other Group Clubs to underwrite on a prudent basis and to investigate risks to be underwritten.
(2) Although there is no obligation to do so, Pool Clubs can exchange factual information concerning the reasons why a particular entry or prospective entry has been declined without risk of adverse legal consequences from the Member concerned.
(3) If Club A advises Club B that it has declined a risk, indicating particularly vessel condition or management as the background to that, Club B should take care that by accepting the risk it is not in breach of the obligation set out under (1) above.
(4) If Club A does not advise Club B that it has declined a
risk, and the prospective new Member fails to advise Club B that his
business has been declined by Club A, giving the reasons, this may
amount to non disclosure by the new Member and entitle Club B, having
accepted the risk, to avoid the policy if it subsequently discovers
these facts.1 Indeed, Club B
may be obliged to avoid the policy in order to protect the interests of
1 See Knight v. US
Fire Insurance, 1987 AMC 1 (2d Cir. 1986); Arnould on Marine
Insurance 642n75; CTI v. Oceanus
 1 Lloyd's Rep. 476 (Stephenson, L.J.),
in which the learned judge wrote:
I must briefly mention two other matters on which the learned Judge relied in this connection at p. 200 of the report. First, he relied on the rule in the marine market that a prior refusal to insure is irrelevant, having previously cited the decision of Mr. Justice Scrutton in Glasgow Assurance Corporation v. William Symondson & Co., (1911) Com. Cas. 109. He went on to say: If a previous refusal to quote at a particular rate is immaterial, it follows, to my mind, that the appearance of having quoted at a particular rate must also be immaterial. With great respect, I think that this is wholly fallacious where, as here, the prior rates form part of the presentation on which the succeeding underwriter is invited to base a quotation. Of course, if Mr. Fleetwood had approached someone else before Mr. Lee, that underwriter's quotation, or refusal to quote, would not have been disclosable to Mr. Lee, any more than there was any duty to disclose to Lloyd's or to Mr. Lee the alternative quotations which A. & A. obtained from other insurers. It was in this sense that Mr. Justice Scrutton discussed the rule in the Glasgow Assurance case.