Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd

A follow-settlements clause requires the reinsured to settle honestly and to take all proper and businesslike steps. It does not require every possible coverage issue to be investigated where, viewed objectively, further investigation would offer no realistic prospect of improving the settlement. A settlement substantially below the informed estimate of the likely adjusted loss may properly be accepted without pursuing points unlikely to affect the result. Where the relevant conduct is clearly evidenced and further evidence is unlikely to affect the issue, the question may be determined summarily.

The claimant sought summary judgment on the defendant reinsurer’s defence to a claim under a facultative excess of loss retrocession. The defence alleged that the original insurer, ACE, had failed to take all proper and businesslike steps when settling Tesco’s flood-related insurance claim.

The alleged failures concerned investigation of coverage under a Thai-law local policy, the number of occurrences and possible causes of the flooding. Other construction issues had previously been determined against the defendant by Hamblen J, subject to a pending appeal. The central issue was whether the alleged failures gave the defence a real prospect of success.

1. Application granted. The defence that ACE failed to act properly or in a businesslike manner had no prospect of success, and there was no compelling reason for the issue to proceed to trial.
2. The court applied the second proviso in Insurance Company of Africa v Scor (UK) Reinsurance [1985] 1 Lloyd's Rep 312. A follow-settlements clause protects the reinsurer against settlements made without honesty or proper and businesslike conduct.
3. ACE had not further investigated the scope of cover under the local policy, including possible deductibles, and had not pursued the question whether the heavy rainfall was the sole source or original cause of the loss. Those omissions were not, in the circumstances, improper or unbusinesslike. Tesco had offered to settle for £80 million net, while VRS had projected a final adjusted loss of £90 million to £100 million. ACE was entitled to conclude that further investigation or challenge to the coverage analysis offered nothing additional to be gained.
4. The court rejected the suggestion that the issue required a trial. The material facts and documents were relatively few, the evidence clearly showed the steps taken and the reasons for settlement, and further evidence was unlikely to advance the dispute materially.
5. The £80 million net settlement was undoubtedly a good settlement. If the defendant’s pending appeal on the preliminary construction issues failed, the ordinary presumption that the reinsurer should follow the settlement would apply.

Hamblen J previously determined preliminary construction issues against Novae. Novae’s appeal was pending at the date of this judgment. This judgment concerned a separate summary judgment application on the remaining defence.