The court was asked to consider preliminary issues concerning facultative obligatory (fac. oblig.) reinsurances of a variety of business. The issues included whether the reinsured was obliged to keep a retention and whether the writing of its business was subject to implied terms. Both parties were suggesting that terms were to be implied.
Held: Hobhouse J accepted an implied term into contracts of reinsurance, which extended to the obligation to keep proper accounting records and to make them reasonably available to reinsurers as being something which ‘would probably be imported anyway by the duty of good faith’.
Hobhouse J set out the pleaded implied terms and said: ‘The implication of these terms was not controversial before me. Both [expert] witnesses thought them appropriate. Even though the opinion of the witnesses as to what is appropriate and reasonable does not itself suffice to show that such terms should be implied, I am satisfied that such terms are necessary in the present transactions. The fac. oblig. nature of the transaction which imposes no restriction on the reassured’s right to chose whether to cede or not to cede, without giving the reinsurer any equivalent right, does necessitate that the reinsured should accept the obligation to conduct the business involved in the cession prudently, reasonably carefully and in accordance with the ordinary practice of the market. In the general formulation the word ‘reasonable’ is to be preferred to ‘due’ and the duty to act prudently as if not reinsured is not an alternative but it is really a restatement of the same obligation, provided it is realised that the obligation does not preclude the plaintiffs from taking into account the added capacity to write business that the availability of the reinsurances give them. Such is, after all, one of the important purposes of any reinsurance. In general terms, it must also be pointed out that the overrider commission being paid to the plaintiffs in part specifically covers the cost of carrying out these obligations.’
Hobhouse J
[1985] 2 Lloyds Rep 599
England and Wales
Cited by:
Cited – Toomey v Eagle Star Insurance Co Ltd CA 1994
The word ‘reinsurance’ is often used loosely simply to describe any contract of insurance which is placed by or for the benefit of an insurer, but it should be construed more properly to require the insurance of an insurable interest in the subject . .
Cited – Digital Satellite Warranty Cover Ltd and Another v Financial Services Authority SC 13-Feb-2013
The appellants challenged an order for the dissolution of their company under the 2000 Acts. They had provided warranties for assorted consumer electrical goods which amounted to insurance, but said that they were not required to be registered under . .
Cited – Re Digital Satellite Warranty Cover Ltd and Others ChD 31-Jan-2011
The Financial Services Authority sought public interest orders for the winding up of three companies selling, it said, extended warranty cover plans without authorisation. The companies said that authorisation was not required, since only services . .
Lists of cited by and citing cases may be incomplete.
Updated: 01 October 2021; Ref: scu.470965
