If care is not taken to make sure that only the relevant clauses are present and that no internal conflicts exist, disputes will arise, and courts may interpret the contract in a way the parties did not contemplate. The Dangers of Short-Form Contracts Another area where ambiguities arise is when the reinsurance contract is merely a slip policy. A slip is a short-form method of documenting the main terms and conditions of a reinsurance contract in advance of the preparation of the full contract wording. The slip itself stands as an enforceable contract should the formal contract not be drafted. While in most cases a formal reinsurance treaty will be signed by the parties, certain reinsurance markets rely on slips and cover notes as the final expression of the parties contractual arrangements.
Slip policies are fraught with potential ambiguities.
If not drafted carefully, they often refer to underlying wordings that might not exist or reference specific forms that are no longer in use. We have seen other slips where the parties express the reinsurance limits only, without clarifying the cedent's retention. These drafting lapses lead to disputes, which are more difficult to resolve because of the ambiguities in the contract. The law of contracts applies to reinsurance contracts with equal force. While the rules of contract interpretation allow the use of extrinsic evidence to determine the parties' intent should a provision be found ambiguous, resorting to extrinsic evidence is unnecessary if the contract is devoid of ambiguity.