Insurance Law Monthly

Follow settlements clauses are used in a number of contexts. Reinsurers may, for example, agree to follow the settlements of reinsureds. Equally, insurers subscribing on a co-insurance basis may agree to follow the settlements entered into by the leading underwriter of the subscription. There is surprisingly little authority on the interpretation of follow settlements clauses in the latter context, and in particular it is unclear whether the leading underwriter owes any form of duty of care to following underwriters where a settlement made by the leading underwriter is binding on them.

The decision of the New South Wales Court of Appeal in Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212 has given clear answers to a conundrum which has vexed the courts of Australia and New Zealand for some years. The court has ruled that legislation designed to protect third parties in the event of the assured’s insolvency does not have the effect of removing the ability of the assured to recover defence costs.

In Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd [2013] EWHC 2394 (TCC), Ramsey J held that: (1) the architect was not entitled to rely on alleged negligence by a contractor to reduce the damages payable to an employer following the novation of the original agreement to the contractor; and (2) insurers remained liable to meet claims arising under the warranty despite the existence of an exclusion because the benefit of the warranty was found to be no greater than the benefit of the equivalent warranty in the original contract. The decision is discussed by Anneliese Day QC of 4 New Square.

The measure of indemnity under a property policy is determined by the terms of the policy. In Islington Park Ltd v ACE Insurance Ltd [2013] NZHC 2983 the policy provided for different measures of indemnity for partial loss depending upon the degree of cover opted for by the assured. The question was whether those measures were relevant in determining whether the property had become a total loss.