The Law of Reinsurance by Colin Edelman QC; Andrew Burns

Author:Colin Edelman QC; Andrew Burns
Language: eng
Format: epub
Publisher: Oxford University Press
Published: 2013-12-07T05:00:00+00:00

(5) Qualification of the Reinsurer’s Rights under a Claims Co-operation Clause

5.42 The courts will not imply a term or requirement that a reinsurer must have reasonable grounds for withholding approval of any settlement under a claims co-operation clause which requires such approval.56 Consequently, where the clause provides that no settlement shall be made without the prior approval of reinsurers there is no requirement that the reinsurer, before withholding approval, must be able to establish positively that there are reasonable prospects of defeating a claim or bettering the proposed settlement. The reinsurer has a right to take the view that a particular claim is one that should be strictly proved by the underlying insured or to take a view as to an appropriate level of settlement prior to it being so proved. Such decisions are often ‘difficult matters of judgment or feel, on which different people may well hold different views. A reinsurer is entitled…to impose his own judgment and policy on such matters.’57 The court cannot substitute its own view of the reasonableness of a reinsurer’s decision to withhold approval. However, it would interfere in circumstances which were so extreme that no reasonable reinsurer in its position could possibly withhold approval.58

5.43 The majority59 of the court in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) were prepared to accept as a general qualification upon the reinsured’s rights under a claims co-operation clause that ‘any withholding of approval by reinsurers should take place in good faith after consideration of and on the basis of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject matter of the particular reinsurance’.60 Consequently, the reinsurer should make the decision whether to approve a proposed settlement, so far as possible, objectively without regard to its narrower sectional exposure as reinsurer.

5.44 Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2)61 said that he could, in the context of the right to withhold approval of any settlement, envisage breaches of, inter alia, an implied mutual duty to co-operate by a reinsurer which were so serious or perhaps of such a kind as to deprive reinsurers of the right to expect their approval to be sought. However, he left open the question whether such breaches would always have to be repudiatory for such a result to follow.

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