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Excess reinsurances and the applicable jurisdiction regime

20 April 2021 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

The United Kingdom High Court in the judgment of 13 April 2021 granted the excess reinsurer’s UK interim anti-suit injunction in respect of the insurer/defendants’ claims in South Africa under the excess reinsurance agreements.  Those claims in the English courts to the exclusion of the South African courts will represent the bulk of the defendants’ claims for an indemnity.  The order does not apply to claims in South Africa under the primary reinsurances. It was held that the choice of law and jurisdiction clauses in the Excess Reinsurance agreement included an exclusive English jurisdiction clause relating to the excess reinsurance claims only.

The judgment is of significance where policies are structured over primary and excess layers and the various layers do not contain identical jurisdiction provisions across the layers.

The reinsurers argued that where the Excess Reinsurances, and the Aggregate Retention Reinsurances, contain exclusive English jurisdiction provisions then on a proper construction or as an implied term of the Primary Reinsurances the claim impacts the Excess Reinsurances and/or the Retention Reinsurances as well as the Primary Reinsurances, then all those disputes should be subject to the exclusive jurisdiction of the English courts.

The argument was that, where the claims impact the excess layers, the parties would have contemplated that all disputes will be subject to the more restricted exclusive English regime and that the UK regime prevails over the non-exclusive SA regime in the primary layer.  This would avoid the inconvenient and commercially undesirable scenario where in effect the same reinsurance claim is litigated in multiple jurisdictions with the risk of inconsistent decisions and increased costs.

While the court agreed that the various layers of the reinsurance fell to be construed together, it did not accept the reinsurers’ argument that the excess reinsurance jurisdiction agreements filtered down to the primary layer.

The result is not ideal. It leaves two sets of proceedings in process in respect of essentially the same claim.

Insurance parties who make use of primary, excess and aggregate retention reinsurances should ensure consistent and back-to-back choice of law, jurisdiction and dispute resolution clauses.

First published by: Financial Institutions Legal Snapshot

 

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