Summary
In an unqualified follow-the-settlements clause, the reinsurer must follow a settlement where the recognised claim arguably falls within the reinsurance as a matter of law and the settlement was made honestly and in a proper and businesslike manner. The clause may bind the reinsurer to an underlying insurer’s determination of a construction issue arising under materially identical insurance and reinsurance terms. In a non-proportional excess-of-loss retrocession, there is no presumption that the cover is back-to-back with the underlying insurance, but the contract may nevertheless be construed consistently with it. Clear contractual language prevails over commercial common sense.
Factual background
The claimant subscribed a share of reinsurance protecting ACE entities against losses suffered by Tesco and purchased an excess-of-loss retrocession from the defendant. Following severe flooding in Thailand, Tesco’s claim was settled by ACE under the Master Policy and local policies. The claimant sought to recover its share from the defendant.
The court tried five preliminary issues concerning the scope of the retrocession, the meaning of “Loss Occurrence”, the identity of the settlements to be followed, the standard applicable to the first Scor proviso, and whether the defendant was bound by ACE’s determination of aggregation issues.
Held
- Coverage. The retrocession covered the claimant’s liability arising under both the Master Policy and local policies. Its general wording covered losses suffered by Tesco and did not limit cover to liabilities arising under the Master Policy. The factual matrix and presentation materials supported that construction.
- Loss Occurrence. “Loss Occurrence” had the same meaning as “Occurrence” in the incorporated Master Policy wording. The addition of the word “Loss” did not clearly create a different aggregation mechanism. A contrary construction would create a fundamental and commercially unexplained mismatch between the reinsurance and retrocession.
- Settlements to be followed. The natural meaning of “original Insurers” in the follow-the-settlements clause referred to ACE, not TMEI. The relevant settlements were therefore those made by ACE under the Master Policy and local policies.
- First Scor proviso. The court considered Assicurazioni Generali SpA v CGU International Insurance plc [2004] 2 All ER (Comm) 114 binding. The claimant had to show that the basis on which ACE recognised and settled the claim arguably fell within the retrocession as a matter of law. The applicable threshold was arguability, not the balance of probabilities.
- Aggregation. Where the insurance and reinsurance contained materially identical terms with materially identical effect, an unqualified follow-the-settlements clause prevented the retrocessionaire from reopening a legal construction issue resolved in the underlying settlement, provided the settlement was honest, proper and businesslike. The relevant terms here were materially back-to-back.
- The five preliminary issues were answered in favour of TMEI in the terms stated at paragraph 120.
The court’s approach to earlier authorities
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Appellate history
First-instance determination of five preliminary issues in Commercial Court proceedings. No appellate history is stated in the judgment.
Key cases cited
18 authorities cited.
- Rainy Sky S. A. and others v Kookmin Bank [2011] UKSC 50
- Lloyds TSB General Insurance Holdings and others (Original Respondents And Cross-appellants) v. Lloyds Bank Group Insurance Company Limited (Original Appellants and Cross-respondents [2003] UKHL 48
- BMA Special Opportunity Hub Fund Ltd. & Ors v African Minerals Finance Ltd [2013] EWCA Civ 416
- Jackson v Dear [2012] EWHC 2060
- IRB Brasil v CX Re [2010] EWHC 974
- Equitas Ltd v R&Q Reinsurance Company (UK) Ltd [2009] EWHC 2787 (Comm)
- Assicurazioni Generali SpA v CGU International Insurance Plc & Ors [2003] EWHC 1073 (Comm)
- Countrywide Assured Group Plc & Others v Marshall and others [2002] EWHC 2082 (Comm)
- SIRIUS INTERNATIONAL INSURANCE CO (PUBL) v FAI GENERAL INSURANCE LTD [2005] Lloyd's Rep IR 294
- Assicurazioni Generali SpA v CGU International Insurance plc [2004] 2 All ER (Comm) 114
- Hill v Mercantile and General Reinsurance Co Plc (Berry v Mercantile and General Reinsurance Co Plc) [1996] 1 WLR 1239
- Axa Reinsurance (UK) plc v Field [1996] 1 WLR 1026
- KUWAIT AIRWAYS CORPORATION AND THE MINISTER OF FINANCE FOR THE STATE OF KUWAIT v. KUWAIT INSURANCE CO. S.A.K. AND OTHERS [1996] 1 Lloyd's Rep 664
- HISCOX AND OTHERS v. OUTHWAITE AND OTHERS (No. 3) [1991] 2 Lloyd's Rep 524
- INSURANCE CO. OF THE STATE OF PENNSYLVANIA v. GRAND UNION INSURANCE CO. AND LOWNDES LAMBERT CONSTRUCTION LTD. [1990] 1 Lloyd's Rep 208
- FORSIKRINGSAKTIESELSKAPET VESTA v. J. N. E. BUTCHER, BAIN DAWES LTD. AND THE AQUACULTURAL INSURANCE SERVICE LTD. [1989] 1 Lloyd's Rep 331
- THE INSURANCE CO. OF AFRICA v. SCOR (U.K.) REINSURANCE CO. LTD. [1985] 1 Lloyd's Rep 312
- Wasa International Ltd v Lexington Insurance Co
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Cases citing this case
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