English and American Insurance Company Ltd v AXA Re SA

Under a reinsurance clause requiring the reinsurer to follow settlements, liability may arise where the reinsured has disposed of, or bound itself to dispose of, a claim by admission or compromise. The recognised claim must fall within the risks covered by the reinsurance. The reinsured must also have acted honestly and taken proper and businesslike steps in reaching the settlement.

Payment alone is insufficient where the contractual requirements for liability have not been met. However, summary judgment may be granted where the evidence establishes paid claims within the cover and the reinsurer has no realistic prospect of disputing liability for those claims. An unmarked letter may still be protected by without prejudice privilege, but its status depends objectively on the surrounding circumstances and the parties’ intention.

English and American Insurance Company Ltd, an insurer subject to a scheme of arrangement, sought summary judgment against its reinsurer, Axa Re SA, for US$772,538. The sum represented Axa’s share of an interim settlement made by EAIC with Dow in relation to breast implant claims.

Axa argued that the interim payment was not a settlement capable of triggering the reinsurance clauses. It also alleged that EAIC had failed to take proper and businesslike steps and sought to strike out evidence referring to two unmarked letters said to form part of without prejudice negotiations. The central issues were whether the letters were privileged and whether EAIC had established an enforceable settlement claim under the reinsurance contracts.

1. Without prejudice evidence. The letters dated 4 December 2001 and 4 July 2005 were not without prejudice communications. Objectively, the first letter was requested as a statement of Axa’s position following a without prejudice meeting, and its wording confirmed an open position. Both letters were open offers, subject to reservations and conditions. The evidence referring to them was therefore admissible.
2. Follow-the-settlements principles. The court adopted the summary in CGU International Insurance plc and Others v Astra Zeneca Insurance Company Ltd [2005] EWHC Comm 2755. A reinsurer is liable only where the reinsured liability has been ascertained by judgment, award or settlement; the loss falls within both the original and reinsurance cover; and the reinsured acted honestly and took proper and businesslike steps in reaching the settlement.
3. Application. EAIC’s interim settlement recognised liability of at least US$3,772,760.93 under the relevant insurance contracts. Paid claims of US$673,808 relating to four contracts had been settled and fell within the reinsurance risks. The London market settlement and Axa’s own willingness to pay supported the conclusion that those amounts had been properly settled.
4. Alternatively, even if the interim settlement did not identify particular claims sufficiently to trigger the clauses, Axa had no realistic prospect of defending liability for the paid claims. Axa’s complaints concerned EAIC’s failure to secure more favourable settlement terms, rather than any substantive challenge to the underlying claims or their determination. The letters did not create a contractual obligation, estoppel or representation requiring Axa to follow the interim settlement, but they were evidence supporting the absence of a defence.
5. Summary judgment was granted for US$673,808, with interest from 29 January 2002. Axa retained the benefit of the doubt concerning amounts attributable to IBNR claims.

First-instance decision. No appellate history is stated in the judgment.