LM-2024-000252 - [2025] EWHC 2704 (Comm)

Each of the Reinsurance Policies contained, whether expressly or by incorporation by reference, the Claims Co-operation Clause set out above. The primary question on this issue concerns the relationship between that clause and the Follow Settlements Clause: “To follow original terms, conditions and settlements (as far as applicable to the layer).”

It is common ground that the Claims Co-operation Clause is not a condition precedent to the Reinsurers’ liability. However, the submission of Mr Scorey and Miss Cowey on behalf of Equitas is that the Claims Co-operation Clause circumscribed the power of RSA to make settlements binding on the Reinsurers in an analogous manner to the effect of the claims co-operation clause in Scor and that, accordingly, Equitas is required to follow settlements only where the adopted course of settlement has been agreed between the Reinsurers and The Insurers.

In Scor there was a follow settlements clause as follows: “Being a Reinsurance of and warranted same … terms and conditions as and to follow the settlements of the Insurance Company of Africa …” There was also a claims co-operation clause, as follows:

“It is a condition precedent to liability under this Insurance that all claims be notified immediately to the Underwriters subscribing to this Policy and the Reassured hereby undertake in arriving at the settlement of any claim, that they will co-operate with the Reassured Underwriters and that no settlement shall be made without the approval of the Underwriters subscribing to this Policy.”

The Court of Appeal confirmed that the effect of a follow settlements clause was that the reinsurers were obliged to indemnify the insurers in the event that they settled a claim by their assured, provided only (i) that the claim fell within the risks covered by the policy of reinsurance and (ii) that in making the settlement the insurers had acted honestly and taken all proper steps. (See further under Issue 3, below.) However, Robert Goff LJ and Fox LJ held that the claims co-operation clause conflicted with the follow settlements clause and that the latter had to be construed to mean that the reinsurers were only obliged to follow settlements that were authorised by the policy: that is, settlements that they had approved. At 331 Robert Goff LJ said:

“There is, I consider, an inconsistency between (1) a follow settlements clause, the underlying philosophy of which is that reinsurers trust insurers to make settlements of claims, and (2) an undertaking in a claims co-operation clause, the underlying philosophy of which is that settlements shall not be made without the approval of reinsurers. Furthermore, it is to be observed that an undertaking by insurers not to make settlements without the approval of reinsurers can only be of relevance in so far as it has an impact upon settlements by insurers which would otherwise be binding on reinsurers. In my judgment the undertaking by the insurers not to make a settlement without the approval of reinsurers must have been intended to circumscribe the power of insurers to make settlements binding upon reinsurers, so that reinsurers would only be bound to follow a settlement when it had received their approval. In other words, the follow settlements clause must be construed in its context in the policy, containing as it does a claims co-operation clause in this form, as only requiring reinsurers to follow settlements which are authorized by the policy, i.e., those which have received their approval, though presumably reinsurers can, if they wish, waive that requirement. This effectively emasculates the follow settlements clause; but it is nevertheless, in my judgment, what the parties to a policy in this form have agreed.”

And at 334 Fox LJ said:

“There is then, on the language of the two clauses, a plain inconsistency between them. The follow settlements clause requires the reinsurers to accept the honest settlements of the insurer arrived at in a businesslike way. The claims co-operation clause (or, more accurately, the second part of it) requires that the insurers shall not make settlements without the approval of the reinsurers. It is a possible view that the two provisions are so much in conflict that both should be disregarded. But I think that reading the two clauses together the proper course is to treat the follow settlements clause as applicable only to such settlements as are approved by the reinsurers. That does least violence to the language. I agree that from the point of view of the insurers that really removes the value of the follow settlements clause but I do not find it possible to give that clause an effect which disregards the clear wording of the claims co-operation clause.”

The decision in Scor, on this point, was thus on the construction of the particular form of claims co-operation clause in the policy in that case. The clause contained an express undertaking not to settle claims without approval. It was materially, though not formally, inconsistent with the follow settlements clause; the only way of holding the two together was by an interpretation that left the follow settlements clause in place but took away its practical force.

In the present case, the Claims Co-operation Clause is in different terms. I have already explained, generally, how I interpret it, but for the purposes of this Issue I make the following particular points.

In view of my conclusions as to the proper construction of the Claims Co-operation Clause, it is unnecessary to consider the facts relating to this issue; Equitas is bound by the Follow Settlements Clause to its full extent. However, I find that the Reinsurers did on any view agree to the course to be adopted. The extent of the relevant communications is summarised in the schedule comprising Appendix 1 to RSA’s written opening submissions. Most importantly, in January 2000 The Insurers sought and obtained the Reinsurers’ approval to seeking a settlement at a contribution of up to 55% of the total claims. The Reinsurers did not thereafter resile from that position, and when in November 2000 they were informed that the Newark Insurers were seeking to settle at 47% and were invited to make any comment, they did not object to the proposed course. (For the details of the settlement, see further below.) The evidence of Mr John Davey, RSA’s claims manager who was in charge of the negotiations leading to the TTSA, was that the Reinsurers consistently confirmed that they were content with the way in which the claim was being handled. That evidence is consistent with the documentary record. It is clear, in my view, that the Reinsurers did indeed agree to the course that was adopted. There is nothing at all in Equitas’s reliance on the fact that the Reinsurers consistently purported to “reserve [their] rights” as against The Insurers. This meant only that, although the Reinsurers approved the course being taken by the Insurers, they were not committing themselves to accepting a liability to indemnify The Insurers. That was, no doubt, a perfectly reasonable approach to take. But it has no bearing on the present issue.