GROUPAMA NAVIGATION ET TRANSPORTS AND OTHERS v. CATATUMBO C.A. SEGUROS

In proportional reinsurance, the scope and nature of cover are presumed to correspond with the underlying insurance unless clear words indicate otherwise. Where the contracts are intended to be back-to-back and contain effectively identical warranties, the reinsurance warranty takes its meaning and effect from the equivalent warranty in the underlying insurance. This remains so where different governing laws would otherwise give the warranties different consequences.

Accordingly, if the law governing the insurance requires a causal connection between breach and loss, the corresponding reinsurance warranty carries the same requirement. A warranty having no counterpart in the insurance, or expressed in irreconcilable terms, remains governed independently by the law applicable to the reinsurance.

Venezuelan insurers covered two coal barges and obtained 50% facultative reinsurance in the London market. The insurance and reinsurance each contained a warranty concerning maintenance of class. The vessels were damaged during a storm, although they had not been classed during the period of cover.

For the preliminary issues, it was assumed that Venezuelan law would leave the insurers liable unless the breach caused the loss. English law governed the reinsurance and ordinarily discharged reinsurers upon breach irrespective of causation. David Steel J held that the contracts were back-to-back and that the reinsurance warranty had the same effect as the underlying warranty: [2000] 1 Lloyd's Rep 266.

The reinsurers appealed. The central issue was whether an express warranty in the reinsurance operated independently under English law or took its effect from the effectively identical warranty in the underlying insurance.

1. Appeal dismissed. Lord Justice Tuckey held that proportional reinsurance carries a presumption that, absent clear contrary wording, the scope and nature of its cover correspond with those of the underlying insurance. The express provisions making all terms, conditions and warranties “as original”, and requiring the reinsurers to follow decisions and settlements, gave effect to that presumption. The warranty incorporated from the insurance therefore retained the meaning and effect it possessed under Venezuelan law.

2. The incorporated and expressly stated class warranties were essentially identical. The identification of the classification society in the insurance created no significant difference. The express warranty could not realistically be isolated from the contract's back-to-back structure. If Venezuelan law required breach to cause the loss before the insurers were discharged, the reinsurers were likewise discharged only upon that condition. Vesta v Butcher [1989] AC 852 strongly supported, but did not compel, this construction. Each reinsurance contract must be construed in its own context.

3. Lord Justice Mance agreed. The reinsurance expressly followed the insurance as to vessels, period, terms, warranties, decisions and settlements. Where back-to-back contracts contain effectively identical warranties and the original warranty is incorporated into the reinsurance, the reinsurance warranty takes its precise meaning and application from its underlying equivalent. A different governing law does not give it an overriding domestic meaning.

4. Lord Justice Mance added that different considerations would arise if the warranties were irreconcilable or the reinsurance warranty had no counterpart in the insurance. In that event, the reinsurance would not be back-to-back to that extent, and the independent warranty would be governed by English law, including section 33(3) of the Marine Insurance Act 1906.

5. Lord Justice Roch agreed with both judgments. The appeal was dismissed with costs, and permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): The reinsurers' appeal was dismissed unanimously. The court upheld the conclusion that the effectively identical warranties in the proportional insurance and reinsurance had the same effect.

2. Commercial Court: David Steel J determined preliminary issues in favour of the insurers, holding that the reinsurance was back-to-back with the original insurance and applying Vesta v Butcher: [2000] 1 Lloyd's Rep 266.