Reinsurance in UK Law

In my judgment, the effect of a clause binding reinsurers to follow settlements of the insurers, is that the reinsurers agree to indemnify insurers in the event that they settle a claim by their assured, i.e. when they dispose, or bind themselves to dispose, of a claim, whether by reason of admission or compromise, provided that the claim so recognised by them falls within the risks covered by the policy of reinsurance as a matter of law, and provided also that in settling the claim the insurers have acted honestly and have taken all proper and businesslike steps in making the settlement.

By the reinsurance policy, the underwriters promised that if Vesta became liable for a loss under the insurance policy, then the underwriters would make good 90 per cent. The effect of a warranty in the reinsurance policy is governed by the effect of the warranty in the insurance poliicy because the reinsurance policy is a contract by the underwriters to indemnify Vesta against liability under the insurance policy.

A reinsurer could, of course, make a special contract with an insurer and agree only to reinsure some of the risks covered by the policy of insurance, leaving the insurer to bear the full cost of the other risks. Such a contract would I believe be wholly exceptional, a departure from the normal understanding of the back-to-back nature of reinsurance and would require to be spelt out in clear terms.

I did not understand Mr. Donaldson to quarrel with the presumption that in a proportionate reinsurance of the kind with which this case is concerned, there is a presumption that, in the absence of clear words to the contrary, the scope and nature of the cover afforded is the same as the cover afforded by the insurance. That at least I think is the effect of Vesta and it makes obvious commercial sense.

The conclusion to which I have come applies because the warranties in the insurance and reinsurance were in terms effectively identical. It is only the differing proper laws of the two contracts which opens the argument that, whatever the warranty's effect in the original insurance, the express warranty in the reinsurance has a different, overriding effect. Had the two contracts contained warranties expressed in different and irreconcilable terms, different considerations could have arisen.

The first is an assumption that where a direct insurer takes out reinsurance, and where both policies contain provisions enabling the amount of losses to be added together, the parties are likely to have intended their effect to be much the same. This assumption may very well be correct where the reinsurance is of the proportionate kind, under which the reinsurer is sharing the risk assumed by the direct insurer.

In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way. A cause is to my mind something altogether less constricted. It can be a continuing state of affairs; it can be the absence of something happening. Equally, the word "originating" was in my view consciously chosen to open up the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate.