Reinsurance: settlement: policy wordings: risk: insurance claims: insurance and reinsurance back to back: follow the settlements clauses: contractors risk: installation and maintenance: reassured: reinsurers: losses: coverage: submarine power cables: good faith: proper and business like steps

A reinsurer was always entitled to raise issues as to the scope of the reinsurance contract even where the insurance was back to back and there was a “follow the settlements” clause.

An insurer (G) appealed from a decision about the meaning and effect of a follow the settlements clause in a reinsurance contract. The insurance covered contractors risks for the installation and maintenance of power cables under a river. A claim was made on the policy and after protracted negotiations G settled the claim for $4 million. G reinsured 80 per cent of its liability with the defendant company (c) and a number of Lloyd’s syndicates. The reinsurance was “as original… to following without question the settlements of the reassured except ex gratia and/or without prejudice settlements”. C refused to pay its share of the settlement relying on the two provisos to liability on a follow the settlements clause set out in The Insurance Company of Africa v Scor (UK) Reinsurance Co (1985) Lloyd’s Rep 312 on the grounds that the claim did not fall within the reinsurance and that G had not taken all proper and business like steps in making the settlement. G sought summary judgment arguing that C could not rely on the two Scor provisos, in particular in the light of the “without question” wording. The judge held that the words “without question” did not preclude C relying on either of the Scor provisos. G’s case on appeal was that the first proviso precluded C from raising coverage issues where the insurance and reinsurance were on back to back terms.

HELD: Reinsurers were bound by reasonable compromises on liability and quantum between the insurers and their assured under the terms of the original policy. It was well established that the insurer did not have to prove that if the original claim was fully argued it would in fact have succeeded. But, as the judge rightly held, the reinsurer was always entitled to raise issues as to the scope of the reinsurance contract even where the insurance was back to back and there was a follow the settlements clause (Scor considered; Hiscox v Outhwaite (No 3) (1991) 2 Lloyd’s Rep 524 applied). The judge was right to go on hold, by reference to the words “the claim so recognised”, that the insurers did not have to show that the claim they had settled in fact fell with the risks covered by the reinsurance but that the claim which they recognised did not arguably did. The judge was also right that the words “without question” did not have the effect of preventing the application of the second Scor proviso relating to the making of business like settlements.

ASSICURAZIONI GENERALI SPA v CGU INTERNATIONAL INSURANCE PLC AND ORS (2004)

CA (Civ Div) (Peter Gibson LJ, Tuckey LJ, Sir Martin Nourse) 6/4/2004.

“Lawtel”: 6th April 2004