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A cut-through endorsement is an agreement that allows the reinsurer to pay the insured directly for a loss, instead of going through the primary carrier; the endorsement “cuts through” the middle man (the primary carrier) and has the reinsurer dealing directly with the original insured. This usually happens when the primary insurer is unable to pay the claim of the original insured because of insolvency.

You should let the insured know that most reinsurers are reluctant to write such endorsements as a matter of company policy. And, there is a legal question about cut-through endorsements in that they may circumvent the principle of privity of contract, that is, the contractual relationship between the primary insurer and the reinsurer; after all, the reinsurance contract is an agreement between the primary insurer and the reinsurance company and the original insured is not a party to that contract in any way.

There is a Florida case that might interest you in that it discusses reinsurance and the relationship between a primary insurer, its reinsurer, and the insured. In Mitchell v. State of Florida , 223 So. 2d 792 (1969), an appeals court discussed the recognition of the “general principle in reinsurance that a reinsurance contract is between a reinsurer and an insurer, and the original insured has no privity in that contract; if the insurer becomes insolvent, reinsurance proceeds become assets to be distributed among general creditors and the original insured has no equitable claim upon them.”