Commercial Court clarifies the position on follow settlement clauses for retrocessionaires

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On 6 November 2013, the Commercial Court handed down its judgment in Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd [2013] EWHC 3362 (Comm). Mr Justice Hamblen held that the defendant retrocessionaire had agreed to follow the insurer’s settlements in respect of the underlying claims provided that those claims arguably fell within the terms of the insurance and that it was bound by the insurer’s construction and interpretation of those terms.

The claims in question arose from the floods that devastated large areas of Thailand in 2011, including significant damage and business interruption cost to a subsidiary of Tesco, EK Chai Distribution System Co (the insured). The insured had arranged worldwide insurance coverage with ACE European Group and local ACE entities including in Thailand.

The claimant provided reinsurance cover for 12.5 per cent of the losses from the claimant and acquired facultative excess of loss reinsurance from the defendant. The reinsurance and retrocession were on the same terms as the original policy and included an unqualified follow-the-settlements clause…

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