Allianz Marine Aviation (France) v GE Frankona Reinsurance Ltd. London & Anor

In construing a reinsurance contract made under a facility, the wording must be read in its factual and commercial context, including the facility’s purpose and the parties’ treatment of equivalent wording in earlier declarations. Where standard terms have been used repeatedly on an understood basis, the parties will ordinarily be taken to have intended the same meaning in later declarations. A different meaning requires agreement or circumstances which reasonably indicate a departure from the standard meaning. In a follow-the-settlements clause, wording referring to claims may focus attention on claims made by the original insured against the insurer, particularly where applying the excess to the insurer’s share would make the cover commercially ineffective.

Allianz insured a percentage share of the vessel Treasure Bay and obtained excess-of-loss reinsurance from GE Frankona under a facility arranged through Alwen Hough Johnson. The vessel was damaged by a tropical storm, and the underlying claim was settled.

The dispute concerned the application of a US$5 million excess. Allianz contended that it should be deducted from the underlying settlement before Allianz’s percentage share was calculated. Frankona contended that it should be deducted from Allianz’s share of the settlement. The court also considered the effect of the facility and 80 earlier declarations, and alternative claims in rectification and estoppel by convention.

1. Judgment for Allianz. The US$5 million excess was to be applied by reference to the underlying claim settled by the original insurers, rather than to Allianz’s percentage share of that settlement.
2. The declaration had to be construed in the context of the facility and the preceding declarations. The facility was designed to permit standard terms to be used for risks involving modest reinsured lines and substantial excesses. Applying the excess to the reinsured percentage would often have made the apparent partial-loss cover meaningless or minimal.
3. The position in the earlier declarations was significant. It was common ground that, in those declarations, claims meant claims by the original insured and the excess was deducted from the original values or settlement figures. Standard wording used under the facility was therefore to be understood as having the same meaning in the later declaration unless the parties agreed otherwise or the circumstances required a different construction.
4. The wording of the excess in the follow-the-settlements clause also supported Allianz’s construction. It directed attention to the original insured’s claim, which the insurer would settle, and limited the settlements which the reinsurer was required to follow.
5. The differences relied upon by Frankona did not justify a different meaning. The Treasure Bay cover was excess-of-loss only, named Allianz as the reinsured, and involved a larger percentage than usual, but none of those features displaced the established meaning. Nor did the underwriting guideline, the earlier quotations, or the alleged distressed nature of the risk do so.
6. The alternative claims failed. The declaration accurately recorded the parties’ intended terms, so there was no mistake supporting rectification. The parties had not adopted a post-contractual conventional basis from which either could not fairly resile.