Waiver of claims provisions

Lexington Insurance Co v Multinacional de Seguros SA [2008] EWHC 1170 (Comm), a judgment on preliminary issues, is the first case to consider the implications of the ruling of the Court of Appeal in Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147. The Court of Appeal there decided that the right of underwriters to rely upon the breach of a claims condition may be lost only by waiver by estoppel and not waiver by election. In Lexington, Mr Justice Christopher Clarke decided that an initial denial of liability by reinsurers did not excuse subsequent non-compliance with the claims condition by reason of waiver or otherwise.

Lexington: the contractual background

Multinacional, a Venezuelan insurer, had issued property and business interruption cover to a number of companies in the CVG Group, companies that produced liquid aluminium, aluminium ingots and aluminium cylinders. Multinacional acted as a front for reinsurers Lexington, Reliance and ARIG under seven slips. Lexington subscribed to four reinsurance slips, Reliance to two slips and ARIG to one slip. The slips were layered, providing total cover for the first US$6.5m of each and every loss. Christopher Clarke J held that each of the slips constituted a separate contract so that there were seven different reinsurance agreements. For the purposes of the trial on preliminary issues the parties accepted that each of the reinsurance agreements contained a claims settlement clause in the following terms: