Lexington Insurance Company & Ors v Multinacional De Seguros SA (Rev 1)

A reinsurer’s denial of liability does not ordinarily terminate the reinsured’s continuing obligations under a claims co-operation clause. The clause may continue to operate where the reinsurer investigates and adjusts the claim without prejudice to its denial.

Waiver by election requires a choice between legally inconsistent rights. An assertion that a condition precedent has discharged liability is not itself such an election. A reinsured breaches its co-operation obligation by abandoning an agreed limitation defence, or by communicating a position likely to undermine the agreed strategy, without consulting the reinsurers.

The reinsurers sought declarations concerning their liability under seven reinsurance slips covering losses suffered by Venalum and insured by Multinacional. Preliminary issues concerned the number of contracts, incorporation and effect of a claims settlement clause, waiver, and breach.

Multinacional had agreed with the reinsurers to pursue a Venezuelan time-bar defence against Venalum. It later sent Venalum a letter stating that the time-bar position was legally incorrect and referring to efforts to reverse the existing position. The central questions were whether the reinsurers’ earlier denial of liability prevented continued operation of the clause, whether the letter waived the time bar, and whether it breached the co-operation obligation.

1. The reinsurance comprised seven contracts. The claims settlement wording was incorporated into each contract, and the parties agreed that breach of the clause would preclude liability under the relevant contract.

2. Waiver by election was not engaged. Applying Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, an election requires inconsistent rights and a choice between them. A reinsurer’s assertion that breach of a condition precedent has discharged liability is not a contractual election. The reinsurer may later abandon or change that defence.

3. The denial of liability did not, as a matter of construction, suspend the clause. A reinsurer may deny liability while continuing to co-operate in adjustment and settlement without prejudice. The parties’ subsequent dealings demonstrated contractual co-operation.

4. Under Venezuelan law, the Venalum claim was time barred after three years. The letter of 3 April 2002 objectively conveyed that Multinacional rejected the time-bar position as legally incorrect and did not intend to rely on it. It therefore amounted to an express waiver. Alternatively, it was a tacit waiver because it seriously conveyed an intention not to take the defence.

5. Multinacional had authority to send the letter. Mr Espinoza was a factor under the Venezuelan Commercial Code, and the registration and formal requirements were directory rather than conditions of authority. In any event, the President and Legal Adviser authorised or approved the letter.

6. Renouncing the time bar breached the co-operation clause. Even if the letter did not waive the time bar, it contradicted the agreed strategy, encouraged Venalum to pursue the claim or argue waiver, and materially undermined the reinsurers’ position. The dispatch of the letter was therefore itself a breach.

The court invited submissions on the appropriate order giving effect to these findings.