Insurance and the reinsurance policies were back to back.
Held: Potter J. said ‘the reinsurer is not liable if the claim settled does not fall within the risks covered by the policy of reinsurance as a matter of law’.
Potter J. accepted as correct the proposition, conceded by counsel for the reinsurers, that under a contract of reinsurance, being a contract of indemnity, time began to run for the purposes of the Limitation Acts only when the liability of the re-assured had been ascertained by judgment, arbitration award or settlement agreement:
‘A contact of reinsurance being a contract of indemnity for losses of the reinsured, the reinsurer’s liability to indemnify the reinsured arises on the date on which the reinsured sustained a loss. In final submissions, it was common ground between the parties that the date on which a reinsured sustains a loss is the date on which his liability to his underlying assured is ascertained, whether by agreement, arbitration award or judgment. The amount then ascertained to be due from the reinsured is the measure of the reinsurer’s obligation of indemnity.’
Potter J accepted expert evidence that:
‘The usual procedure was, and still is, that a Lloyd’s underwriter identifies a specific reinsurance cession by use of a symbol incorporated within the underwriting reference written alongside his line on the stamp identifying the syndicate on the broker’s slip. When the broker completes the placement, he sends the slip to the LPSO for signing. Such process includes the LPSO recording of each underwriter’s reference, which reference appears against the underwriter’s line and the syndicate number on the policy once issued by the LPSO. It also appears on each premium card and claims card issued by the LPSO to each underwriter recording any financial transaction on each policy. Once the LPSO has recorded the underwriter’s reference, a system is then activated which provides for the payment of the premium due to the reinsurers and the collection of claims from reinsurers. It is customary for insurers to credit and debit reinsurers at agreed periods. In this case, as is common, the provision was for ‘Quarterly Accounts’.
He held: ‘So far as notice is concerned, it does not seem to me that in the context of the working of the Lloyd’s market, notice of cession is required before such cession can be valid and binding, absent some specific provision in the reinsurance contract which requires it.’
Judges:
Potter J
Citations:
[1995] Lloyd’s Rep IR 261
Jurisdiction:
England and Wales
Cited by:
At first instance – Baker v Black Sea and Baltic General Insurance Co Ltd HL 20-May-1998
The question agreed to be before the court was ‘Where an insurer incurs costs in investigating settling or defending claims by his insured, can the insurer recover a proportion of these costs under a quota share or other form of proportional . .
Appeal from – Colin Baker v Black Sea and Baltic General Insurance Co Ltd CA 1996
Otton LJ explained the standard commercial rate of interest: ‘The practice whereby interest is normally awarded at 1 per cent over base rate amounts to a presumption which can be displaced if its application would be substantially unfair to either . .
Lists of cited by and citing cases may be incomplete.
Insurance, Limitation
Updated: 15 September 2022; Ref: scu.681051
