Reinsurance Focus

The UK Commercial Court, Queen's Bench Division, has entered an extensive opinion (with an accompanying Appendix), denying claims asserted by various Names against Her Majesty's Treasury, which alleged that the Names had suffered losses at Lloyd's due to the government’s failure appropriately to implement an EEC Insurance Directive (Directive 73/239/EEC). The Names contended that as a result of the failures in the implementation process, the “true IBNR” for US asbestos-related risks were not disclosed, resulting in the Names participating in the reinsurance of such risks, when they would not have done so had they known the “true IBNR” for such risks. Poole v. Her Majesty’s Treasury, [2006] EWHC 2731 (Comm.) (Nov. 8, 2006). The Court denied the claims on two bases: (1) the Insurance Directive did not grant any relevant rights to the Names; and (2) the claims were time barred.

A UK Court has held that a follow the fortunes provision in facultative reinsurance contracts did not apply to without prejudice settlements reached by a reinsured with its insureds, since the clause provided that the reinsurance would “follow in all respects the settlements or other payments of whatsoever nature excluding without prejudice and ex-gratia settlements.” The clear contractual exclusion of without prejudice settlements from the operation of the follow the fortunes clause meant that the reinsured had to prove that the claims payments were appropriate under the underlying insurance. Faraday Capital Ltd. v. Copenhagen Reinsurance Co., [2006] EWHC 1474, [2006] All ER D 74, 2006 WL 2667603 (Queen's Bench Comm. Ct. May 4, 2006).

The UK Commercial Court has approved an arbitrator's decision to permit the substitution of one Claimant for another to reflect what in effect was a corporate reorganization. It also permitted the Claimant to use a pending arbitration to seek an award of all balances that would come due under the treaty during the pendency of the arbitration, instead of requiring a filing of separate arbitrations for amounts that became due after the commencement of the pending arbitration. Harper Versicherungs AG v. Indemnity Marine Assurance Co., [2006] EWHC 1500 (QB) (June 23, 2006).

The UK Court of Appeal has upheld the avoidance of insurance on a vessel based upon the failure to disclose, during the placement of the insurance, that third parties had made allegations of fraudulent conduct by the prospective insured. North Star Shipping Ltd. v. Sphere Drake Insurance, [2006] EWCA Civ 378 (April 7, 2006). Even though the allegations turned out to be lacking in merit, the Court found that they would have been material to an underwriter considering the placement of the insurance.

The UK Commercial Court has decided that a reinsurance company is entitled to damage for the cost of investigating a conspiracy between one of its employees and its broker/intermediary. R+V Versicherung AG v. Risk Insurance and Reinsurance Solutions, SA, [2006] EWHC 1705 (Commercial Court July 10, 2006). The Court had previously ruled on other damages requests. The fraudulent activity included a hidden compensation agreement that gave the broker additional commissions in exchange for an equity interest in a London operation that was of minimal if any value.

A UK Chancery Court has held that by entering into collateral settlement agreements relating to asbestos-related personal injury claims, a party did not violate provisions of various reinsurance agreements. Curzon Insurance Limited v. Centre Reinsurance International Company, [2005] EWHC 2991 (Ch) (December 21, 2005). The Court stated that the rights of the reinsurers under the reinsurance agreements were not impaired by the settlements.

The UK Court of Appeal has held that a reinsurance broker was not entitled to receive brokerage on both a deposit premium and on the total adjusted premium (without deduction of the deposit premium). This was a question of the interpretation of four excess of loss reinsurance contracts and seven burning cost contracts. Absalom v. TCRU Ltd., [2005] EWCA Civ 1586 (December 19, 2005).

At the request of the sole member of a Lloyd's syndicate that is in run-off, the London Commercial Court has issued an injunction to restrain a party to a UK arbitration from seeking to intervene in a related action pending in a United States District Court, in which it would seek to restrain the Claimant in the UK arbitration from proceeding with the UK arbitration. Goshawk Dedicated Ltd. v. ROP Inc., [2006] EWHC 1730 (Queen's Bench Div. Commercial Court July 12, 2006). The Court held that the parties were obligated to arbitrate in the UK, as contractually agreed. This is an interesting example of a jurisdictional conflict between two countries.

A broker was directed to procure a policy on a vessal for the benefit of two parties as co-insureds. It failed to have one party named as an insured. When a loss occurred and the claim of the unnamed party was denied, litigation unsued. The UK Court of Appeal held that losses of the unnamed party resulted from breach of duty by the broker, and that the unnamed party could not be considered to be a co-insured based upon its status as an undisclosed principal of the policy's beneficiary. Talbot Underwriting Ltd. v. Nausch, Hogan & Murray, Inc., [2006] EWCA 889 (June 29, 2006).

Under UK law, a reinsurance broker may assert a lien over claim proceeds for premiums for reinsurance coverage paid by the party's broker, but not reimbursed by the reinsured. Heath Lambert Ltd. v. Sociedad de Corretaje de Seguros, [2006] EWHC 1345 (June 9, 2006).