The reinsurance contracts between CX Re and IRB contained a double proviso follow the settlements clause which read: “all loss settlements made by the Reinsured, including compromise settlements, shall be unconditionally binding upon Reinsurers provided such settlements are within the conditions of the original policies and/or contracts and within the terms of this reinsurance…“. IRB noted that the requirements to prove losses under the double proviso clause were those set out in Hill v Mercantile & General and Equitas v R&Q (previously blogged here), which together required the reinsured to prove, as a matter of law, that the settlements were within the terms of the inwards policy and the outwards policy; the requisite standard of proof being on the balance of probabilities. IRB argued that the Arbitrators, holding IRB liable to indemnify CX Re for the settled losses, had suggested in their Award that it was sufficient to meet the requirements under the double proviso clause that the losses were “arguably” within the terms of the inwards policy and the outwards policy. Burton J endorsed the requirements set out in Hill and Equitas and found that the Arbitrators’ references to “arguably” were unfortunate but were not intended to depart from those requirements, which Burton J found the Arbitrators had correctly identified and applied.
Burton J also addressed an “allocation issue”, determined by the Arbitrators in their Award, which concerned whether the losses settled by CX Re occurred within the periods covered by the reinsurance policies. The Arbitrators had concluded that the settlements reached by CX Re, pursuant to CIP, Buy Back, commutation and compromise settlement agreements, were within the relevant periods of coverage of the reinsurance policies since there was a reasonable and businesslike allocation of liabilities to the relevant periods of cover, including the periods covered by the reinsurance policies. Significantly, this reasonable and businesslike allocation of liabilities included CX Re’s liability for “future claims” (i.e. IBNR – it seems there was no disagreement over the recoverability of outstandings). Burton J agreed with the Arbitrators’ findings, endorsing the recoverability of IBNR settlements under reinsurance contracts with a double proviso follow the settlements clause. The Arbitrators had identified and applied the correct standard of proof in their consideration of all aspects of the clause. The appeal was dismissed.
This case will have significant implications for the recoverability of loss settlements from reinsurers where there are allocation issues, including the allocation of IBNR.
