Beazley Underwriting Ltd & Ors v Al Ahleia Insurance Company

A claims control clause operating as a condition precedent to reinsurance liability is an exemption clause. It must be construed fairly and its wording must be clear. The clause may require reinsurers to receive a proper opportunity to control negotiations, adjustments and settlements concerning losses capable of giving rise to a reinsurance claim.

However, a clause directed to such losses does not ordinarily regulate settlements, compromises or admissions concerning a reinsurer’s separate share or the cedant’s own retention. “Settlement” includes a legally binding agreement or transfer of consideration, including a legally binding agreement expressed to be without prejudice. “Or” is disjunctive. An admission of liability must be clear and unequivocal, although it may concern only part of a claim. An offer to pay money is not, by itself, an admission of liability.

The claimants were reinsurers under a reinsurance contract relating to an underlying insurance policy covering damage to an oil storage tank in Kuwait. They alleged that the defendants breached a claims control clause by conducting negotiations, admitting liability and settling or compromising the underlying claim without the prior approval of the relevant reinsurers.

The court considered the proper construction of the clause, including the scope of the expressions concerning losses capable of giving rise to a reinsurance claim, the meaning of settlement and admission of liability, and whether the clause was triggered by conduct relating only to AIG’s share and the defendants’ retained share.

1. Construction of the clause. Compliance with the claims control clause was a condition precedent to the reinsurers’ liability. It operated as an exemption clause, so the reinsurers could rely on it only if its words were clear on a fair construction: Royal & Sun Alliance v Dornoch [2005] Lloyd’s Rep IR 544.
2. Sub-paragraph (b). The words “such loss or losses” referred back to losses which might give rise to a claim under the reinsurance. The clause allocated a controlling role to the reinsurers and required the defendants to give them a proper opportunity to exercise that role. The brief telephone conversation on 2 December 2009 involved demands or expectations from the insured, rather than negotiations or an agreement. The defendants’ internal approval on 6 December had no legal effect between the parties. No breach of sub-paragraph (b) was established.
3. Sub-paragraph (c). Read in the context of the clause as a whole, the provision did not apply to settlements, compromises or admissions concerning AIG’s share or the defendants’ own retention. The reinsurers knew that AIG was pursuing settlement of its share and were content, or resigned, that this should occur. A legally binding settlement could be caught even if expressed to be without prejudice, but the relevant documents were no more than offers to pay money or vary the underlying insurance arrangements.
4. Meaning of the operative expressions. “Or” was disjunctive, so either a settlement or compromise or an admission of liability was sufficient. An admission had to be clear and unequivocal, but it could relate to part of the claim. An offer to settle or pay money did not itself amount to an admission of liability: Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] Lloyd’s Rep IR 667.
5. The defendants had not breached the claims control clause. They were therefore not barred from pursuing their claim under the reinsurance contract and declaration. The parties were directed to agree a draft order, failing which outstanding issues would be dealt with by the court.

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