Assicurazioni Generali SpA v CGU International Insurance Plc & Ors

A follow-the-settlements clause binds reinsurers to an insurer’s admission or compromise of liability, including disputes about the scope of the underlying insurance, where the reinsurance is deliberately back to back with the insurance. The reinsurer may nevertheless require proof that the claim recognised by the settlement falls within the reinsurance risks as a matter of law. The insurer must also have acted honestly and taken all proper and businesslike steps. The court must identify the real factual and legal basis of the settlement. A settlement is not ex gratia merely because the insurer may ultimately have had no actual liability, if arguable liability was admitted or compromised.

Generali sought summary judgment against reinsurers under a construction-risk reinsurance containing a follow-the-settlements clause. Generali had settled an underlying claim concerning damaged submarine cables and sought indemnity for the reinsurers’ proportions of the settlement.

The application was confined to construction of the clause and whether the settlement was ex gratia. The court also considered whether the settlement’s being negotiated and paid directly by Generali to the original assured affected its character.

1. Summary judgment. Under CPR Part 24, summary judgment is exceptional. The question is whether the claim or defence has a real, meaning realistic, prospect of success and whether there is any other compelling reason for trial. The procedure must not become a mini-trial on incomplete evidence. The construction issue could properly be finally determined because no further relevant evidence was expected; the factual issue whether the settlement was ex gratia required trial if necessary.
2. Construction of the clause. The clause required the reinsurers to follow Generali’s settlements, except ex gratia and without prejudice settlements, provided that the recognised claims fell within the reinsurance risks as a matter of law and that Generali acted honestly and took all proper and businesslike steps.
3. The reinsurers remained entitled to examine whether the claim recognised by the settlement fell within their own reinsurance cover. They were not entitled to require proof that the original loss in fact gave rise to actual liability under the underlying insurance. Where identical insurance and reinsurance terms were deliberately used back to back, an honest and businesslike compromise of a genuine coverage dispute under the insurance bound the reinsurers on the same issue.
4. The relevant inquiry was the real basis of the settlement, including the factual and legal ingredients embodied in it. That basis could require examination of the settlement, surrounding communications and internal investigations.
5. The fact that CIC was interposed as a fronting insurer did not alter the result. Generali had handled the claim and settlement in practical terms, and the settlement was made under its inward contract with CIC on a basis which the reinsurers were bound to follow, subject to the stated provisos.
6. The court rejected the submission that the settlement was ex gratia merely because actual liability might be absent. An arguable liability admitted or compromised would not be ex gratia. Whether this settlement was in fact ex gratia depended on disputed facts and was left for disclosure and, if necessary, trial. Direct negotiation and payment between Generali and Pirelli were irrelevant to that issue.
7. The defendants’ amendment application was deferred for further submissions, together with the appropriate declaration, order and costs.