Insurance and reinsurance proper and business settlements and Thai floods

It has long been established that where a reinsurance contract requires the reinsurer to follow the settlements of the reinsured, the reinsurer will be bound subject to two provisos: ‘… [1] that the claim so recognised [by the reinsured] falls within the risks covered by the policy of reinsurance as a matter of law and [2] provided also that in settling the claim the insurers have acted honestly and have taken all proper and business-like steps in making the settlement.’ (see Insurance Company of Africa v SCOR [UK] Reinsurance Co Ltd [1985] 1 Lloyd’s Rep 312).

In his June 2014 judgment in Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd [2014] EWHC 2105 (Comm), Mr Justice Field sitting in the Commercial Court had to consider the meaning of the phrase ‘proper and business-like’ in this context. The case arose out of losses suffered by Tesco as a result of the 2011 Thai floods. 

Tesco had purchased property damage and business interruption cover with ACE in the form of a master policy with local policies issued in different jurisdictions around the world. The insurance provided cover on an ‘any one occurrence’ basis where an occurrence was broadly defined in the master policy as ‘any one occurrence or any series of cccurrences consequent or attributable to one source or original cause’. The master policy also contained an hours clause providing that all flood losses in a 72-hour period should be deemed to have been caused by a single occurrence…

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