Follow the settlements clauses

Donald Dinnie

It is worth reminding ourselves about the useful findings in the UK Tokio Marine v Novae Corporate Underwriting case in 2013 regarding follow the settlements clauses:

1. Where a retrocession by a reinsurer is expressed in general and unqualified terms it includes liability under all underlying policies.
2. The reference to “loss occurrence” under the retrocession was construed to have the same meaning as the word “occurrence” in the master policy. If different meanings are intended there should be clear words to that effect. It is of course always better to make the policies back-to-back in wording on essential issues.
3. A “follow the settlements” clause in which reinsurers “agree to follow all settlements made by original insurers arising out of and in connection with the original insurance” clearly and unambiguously for the purposes of the retrocession relates to all the settlements made by the original underlying insurer and not only the settlements under the reinsurance agreement.
4. The reinsurer only needs to show that a claim arguably falls within the retrocession agreement in order to oblige the retrocessionary to follow the settlement. Proof on a balance of probabilities is not necessary.
5. The retrocessionary is bound by the determinations made by the original insured as to the construction and application of the provisions in the master policy and other original policies.
   
   

First published by :Financial Institutions Legal Snapshot