An underlying insurance policy covered a warehouse in Liberia against fire, including $500,000 for buildings and $3 million for contents. The warehouse became a total loss. The owners of the warehouse brought proceedings in the Liberian courts. The insurers unsuccessfully defended, and as well as the sum insured, they had to pay general damages of $600,000 and $58,000 costs. The insurers could recover a proportion of the damages and costs from the re-insurers under an implied term of the re-insurance contract.
Held: There was no basis to imply a term that the re-insurers should bear a proportion of the costs of defending the claim on the ground of business efficacy. The contract worked effectively without any such implication, and if such a term was implied, the re-insurers’ potential liability would be increased beyond, and possibly far beyond, the sum insured under the contract of re-insurance. The effect of the words in the policy ‘to pay as may be paid thereon’ was to bind reinsurers to a compromise by the insurers of the question of the amount of a claim so that, provided that the insurers could establish a loss of the kind insured and reinsured, and that the reinsured had acted honestly and had taken all proper and businesslike steps to have the amount of the loss fairly and carefully ascertained, reinsurers were obliged to indemnify the insurers in respect of that amount.
Judges:
Robert Goff LJ, Fox LJ
Citations:
[1985] 1 Lloyd’s Rep 312
Jurisdiction:
England and Wales
Cited by:
Cited – 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 . .
Lists of cited by and citing cases may be incomplete.
Insurance, Contract
Updated: 28 May 2022; Ref: scu.179311
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