San Evans Maritime Inc & Ors v Aigaion Insurance Co SA

A follow settlements clause is construed from its wording and commercial purpose. Where the following insurer agrees to follow the lead insurers “in claims”, the clause may operate as a direct contractual agreement with the assured to follow settlements, without agency. A lead insurer cannot defeat that obligation by stating that it settles only for its own participation and does not bind other insurers. A settlement term protecting lead insurers from liability to a following insurer does not, without clear words, surrender the assured’s separate right to rely on the follow clause. A contractual term excluding a following insurer’s rights does not purport to confer a benefit on that insurer merely because its position may improve.

The assured claimed under policies covering the vessel St Efrem. Lloyd’s syndicates insured 50 per cent of the interest and Aigaion insured a further 30 per cent under a separate policy containing a follow clause: it agreed to follow Catlin and Brit “in claims”, excluding ex-gratia payments. The Lloyd’s syndicates settled their claim with the assured. Their settlement agreement stated that they acted only for their respective participations and did not bind any other insurer.

Three preliminary issues concerned the construction of the follow clause, whether the settlement triggered it, and whether the assured had agreed to a term which Aigaion could enforce under section 1(b) of the Contracts (Rights of Third Parties) Act 1999.

1. Construction of the follow clause. The clause required Aigaion to follow any settlement made by Catlin and Brit in respect of an insurance claim arising from the casualty, except an ex-gratia payment. Its language contained no agency requirement. Treating Catlin and Brit as Aigaion’s agents would add complexity and words absent from the clause. The construction also advanced the commercial purpose of simplifying claims settlement and reducing time and costs (paras [11]-[22]).
2. The court adopted a simple approach to follow clauses. Following insurers accept both the advantages and risks of the lead insurers’ handling of settlements. The precise operation of such clauses nevertheless depends on their terms, since follow clauses differ in scope. The authorities showed uncertainty between contractual and agency analyses, but the wording here supported the former.
3. Clause 7. Properly construed against the background known to the parties, clause 7 meant that the Lloyd’s syndicates did not purport or intend to bind Aigaion. That did not mean that the assured had agreed to abandon its rights under Aigaion’s follow clause. Clear words would have been needed to surrender that valuable contractual right (paras [24]-[38], [42]-[44]).
4. Aigaion could not enforce clause 7 under section 1(b) of the Contracts (Rights of Third Parties) Act 1999. The purpose of clause 7 was to protect the Lloyd’s syndicates from possible liability to Aigaion, not to confer a benefit on Aigaion. Any improvement in Aigaion’s position was incidental (paras [39]-[41]).
5. Disposition. The three preliminary issues were answered in the claimants’ favour: the clause required Aigaion to follow the settlement; the settlement triggered the clause; and clause 7 could not be enforced by Aigaion and did not prevent reliance on the follow clause (paras [44], [48]-[49]).