The Commercial Court has held that a “follow the leader” clause was to have a broad application and was not restricted to quantum unless there was clear language indicating such restriction.

In an application for summary judgment in PT Buana Samudra Pratama v Maritime Mutual Insurance Association (NZ) Ltd [2011] EWHC 2413 (Comm), the Court said the follow clause covered issues of liability as well as issues of quantum, and it also applied even where a breach of warranty had occurred before the date of the decision or settlement of the claim by the leader.

The facts of the case were that a tug owner, Buana, was insured by Maritime Marine Insurance (MMI), Aegis and Axa on a policy led by Axa. Under the follow clause, MMI agreed “to follow Axa in respect of all decisions, surveys and settlements regarding claims within the terms of the policy, unless these settlements are to be made on an ex gratia or without prejudice basis.” Axa settled the claim but MMI, alleging breach of warranty with regard to certain towage and salvage activities that the tugboat had carried out, rejected the claim. Buana applied for summary judgment that MMI was obliged to follow Axa and that there was no breach of warranty. MMI argued that it didn’t have to follow Axa when there was a breach of warranty.

Mr Justice Teare analysed the contract and in particular the follow clause and said the question was whether the wording indicated “an intention by the parties to restrict the ambit of the follow clause in the manner suggested by the Defendant.” He held that as the wording of the clause referred to “all” settlements this suggested there were no exceptions save for those expressly stated, and as it referred to “all decisions, surveys and settlements” this suggested the whole process of claims investigation and settlement was to be followed, ie including both liability and quantum. To restrict the ambit of the clause would require “much clearer language than that found in the clause.” With regards to a possible breach of warranty occurring before the settlement, Teare J said that the leader’s decision on this point came within the ambit of decisions which MMI was obliged to follow under the follow clause. If it did not, he said the efficacy of the follow clause would be “greatly reduced and its commercial purpose frustrated.”