Claims cooperation clauses

The Court of Appeal has, in AIG Europe (Ireland) Ltd v Faraday Capital Ltd [2007] EWCA Civ 1208 reversed the first instance decision of Mr Justice Morison, [2007] Lloyd’s Rep IR 267, and has decided that the reinsured was in breach of a claims cooperation clause which required notification of losses to reinsurers as soon as practicable after the reinsured had become aware of them. At first instance Morison J had applied the decision of the Court of Appeal in Royal & Sun Alliance Plc v Dornoch [2005] 1 Lloyd’s Rep IR 544 and had held that the two cases were more or less indistinguishable. The Court of Appeal in Faraday disagreed with that analysis of its earlier decision. The facts are repeated from the analysis of the trial judge’s decision in the February 2007 issue of Insurance Law Monthly. As was pointed out in both Faraday and Dornoch, the problems in each case arose because the claims cooperation clause in the reinsurance, which required notification of losses known to the reinsured, was one designed for property covers, but had been cut and pasted into use in liability covers, and that an appropriate form of wording for the latter type of policy would have referred to claims rather than losses.