Formation of insurance contracts - Incorporation of policy terms

(Union Camp Chemicals Ltd v Ace Insurance SA-NV, [2002] Lloyd’s Rep IR (forthcoming))

Facultative reinsurance contracts placed in the London market are generally formed by the incorporation of the terms of the direct policy into the reinsurance. The conditions for incorporation, and the effect of incorporation, were discussed at length by Rix LJ in HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co Ltd [2001] Lloyd’s Rep IR 596 . The Court of Appeal in essence decided that there are two distinct questions to be answered in deciding whether any particular term has been incorporated: (a) is the term incorporated at all – that question depends upon the compatibility of the term with the express provisions of the contract into which it is purportedly incorporated; and (b) if it is incorporated, what is its effect – the term may operate so as to create independent rights between the parties, or it may simply be a recognition of the term that exists in the original policy. The problems raised by incorporation were again to the fore in Union Camp Chemicals Ltd v Ace Insurance SA-NV , a decision of His Honour Judge Thornton QC in the Technology and Construction Court, June 2001.