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).
Week's Best Posts
Liability limit in excess policy applies to following form reinsurance certificate
The Second Circuit has found that an aggregate liability limit in excess insurance policies applied to facultative reinsurance certificates which contained a “follow the form” clause. The parties had a dispute as to how the aggregate limit should be interpreted for purposes of the reinsurance. The Court affirmed a District Court Order ruling that the clear definition of the aggregate limit in the underlying policy controlled, as a matter of contract interpretation. Travelers Casualty & Surety Co. v. ACE American Reinsurance Co., Case No. 05-6189 (2nd Cir. Oct. 18, 2006).
Claims against interpleaded policy limits not subject to arbitration provision
The United States Court of Appeals for the Fifth Circuit has held that the arbitration provision in two fiduciary liability insurance policies issued to Enron Corporation did not apply to require arbitration of competing claims asserted by multiple insureds to the limits of two policies that were interpleaded by the insurers. Tittle v. Enron Corp., Case No. 05-20380 (5th Cir. Sept. 1, 2006).
NAIC collateral proposal proceeds towards a vote
The NAIC's Reinsurance Task Force is proceeding towards an anticipated final vote in early 2007 on a proposal to change the indirect regulation of non-admitted reinsurers, which currently allows U.S. reinsureds to take statutory credit on their balance sheet for reinsurance only if such reinsurance obligations are 100% collateralized. The Task Force's web page contains the current red-lined version of the U.S. Reinsurance Collateral White Paper and Rating Proposal: an alternative procedure to grant credit for ceded reinsurance.
UK Court permits substitution of party in arbitration and expanded damage request
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).