Reinsurance Focus

Reinsurance treaties often contain so-called “service of suit” clauses. The clause typically states something to the effect that “in the event of the failure of Reinsurer hereon to pay any amount claimed to be due, Reinsurer hereon, at the request of the Reinsured, will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.” Practitioners may wish to consider the interaction of this clause with an arbitration clause co-existing in the same treaty. Specifically, does the reinsurer’s submission to the jurisdiction of the courts take precedence over the right to arbitrate disputes between the parties? Different courts have reached different results, with the different decisions generally being reconcilable based upon varying language in the service of suit and arbitration provisions of different agreements. In Ace Capital Ltd. v. CMS Energy Corporation [2008] EWHC 1843 (Comm. July 30, 2008), the UK Commercial Court held that it does not. The court acknowledged what it characterized as the minority view that the more specific service of suit clause should prevail over a general arbitration clause, where the single issue of the service of suit clause is a “failure . . . to pay” an amount “claimed to be due” under the treaty, and the arbitration clause broadly refers to “any dispute” arising out of the entire contract. However, the court favored an apparent majority view that a service of suit clause is merely an aid to enforcing awards granted to reinsureds through arbitration.

This post written by Brian Perryman.