UK COURT: EXCESS POINT IN REINSURANCE AGREEMENT “SCALED” TO REFLECT INSURED’S INTEREST IN LOST ASSETS
The UK Commercial Court recently ruled on the interpretation of a reinsurance agreement related to wind storm risks for a large independent oil exploration and production venture in the Gulf of Mexico. The dispute concerns the interpretation of the coverage limit provision of a facultative reinsurance policy applied to claims from Hurricane Rita. The provision provided “to pay up to Original Package Policy limits/amounts/sums insured excess of USD250 million (100%) any one occurrence of losses to the original placement.” The cedent calculated the reinsurance claim on the basis that the US $250 million excess point was referable to 100% values of the property, and that since Devon Energy (the insured) had less than a 100% interest, the excess point had to be “scaled” to reflect its lower interest. The Court agreed, finding that the evidence was “overwhelming” that the notation “100%” in the reinsurance agreement “has a recognized and established meaning in the market … [meaning] that the limit or excess scales to reflect the assured’s interest in the relevant assets.” A claim of misrepresentation was also rejected by the court. Gard Marine & Energy Limited v. Tunnicliffe, Case No. 2007 Folio 351, 2011 EWHC 1658 (Comm. Ct. June 30, 2011).
This post written by John Black.
