GAN INSURANCE CO LTD AND EAGLE STAR INSURANCE CO LTD v TAI PING INSURANCE CO LTD

In a London-market reinsurance contract, wording such as as original ordinarily identifies the scope of the reinsured risk, including its period, geographical limits and nature. It does not, without unequivocal language, incorporate every term of the underlying policy or import a foreign choice-of-law clause conflicting with the reinsurance’s commercial basis. Where the risk presented to reinsurers is materially different from the risk assumed by the reinsured, no presumption of back-to-back cover arises. London placement, standard forms and market clauses may demonstrate with reasonable certainty an implied choice of English law. In the absence of express choice, English law may also apply as the law with which the reinsurance is most closely connected.

Tai Ping, a Taiwanese insurer, obtained facultative reinsurance in the London market from Gan for an erection all risks policy covering a factory in Taiwan. After a fire, Tai Ping settled the insured’s claim. Gan alleged material misrepresentation or non-disclosure and breach of a claims co-operation condition, and sought declarations that it was not liable under the reinsurance.

Mance J granted leave to serve the proceedings out of the jurisdiction. Tai Ping applied under O.12, r.8(1) to set aside service. Cresswell J held that the reinsurance was governed by English law and that England was clearly the appropriate forum. The appeal concerned the proper law of the reinsurance and the exercise of the forum conveniens discretion.

1. Appeal dismissed. Lord Justice Beldam delivered the judgment, with which Lord Justices Brooke and Mummery agreed. The appeal was dismissed with costs and leave to appeal to the House of Lords was refused.
2. The words as original, following original and similar wording in a reinsurance slip do not ordinarily incorporate every term of the underlying policy. Their principal function is to identify the scope of the risk, including its period, geographical limits and nature. The distinction between the original insurance, which defines the risk accepted by the insurer, and the reinsurance, which defines the degree of that risk accepted by the reinsurer, was reflected in Forsik. Vesta v Butcher [1989] AC 852. Terms wholly inappropriate to reinsurance should not be imported without a clear contrary intention.
3. Where the risk presented to underwriters is materially different from that assumed by the reinsured, it cannot reasonably be presumed that underwriters intended to provide back-to-back cover. The reinsurance slip in this case distinguished its own conditions from the original conditions and did not incorporate all terms of the Taiwanese policy.
4. In a London reinsurance contract between London underwriters and brokers, the parties’ usual commercial basis includes the duty of disclosure and the right to avoid for misrepresentation. The Taiwanese choice-of-law clause could not be imputed to the reinsurance in the absence of express agreement because it conflicted with that basis. The slip’s information provision also expressly dealt with the fire-protection information, leaving no room for an inconsistent implied term.
5. Under section 2(1) of the Contracts (Applicable Law) Act 1990 and Article 3(1) of the Rome Convention, the terms and circumstances demonstrated with reasonable certainty an implied choice of English law. The London placement, English slip form and standard London-market clauses were significant. In any event, English law was the law most closely connected with the reinsurance in the absence of express choice.
6. Cresswell J had considered the relevant legal, practical, evidential and forum factors. Tai Ping showed no error in the exercise of his discretion or in his conclusion that England was clearly the appropriate forum.

1. Court of Appeal (Civil Division): Dismissed Tai Ping’s appeal, ordered Tai Ping to pay the costs, and refused leave to appeal to the House of Lords.
2. High Court of Justice, Cresswell J: On 28 April 1998 dismissed Tai Ping’s application to set aside service. He held that the reinsurance was governed by English law and that England was clearly the appropriate forum.