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Reinsurance Practice and the Law

Chapter 43



43.1 In the past, it was unusual for the reinsurance market to resort to the adversarial system (whether it be litigation or arbitration) to resolve its disputes. When a slip was scratched, good faith demanded that the reinsurer would pay, relying upon the utmost good faith of his reassured. To a certain extent market practice developed independently of the law. Where disputes did occur, the market utilised the “honourable engagement” or “equity” clause to attempt to introduce into the dispute resolution process an informal and market-orientated approach. Unfortunately for the reinsurance market, the last thirty years have seen a dramatic change of attitude. Vast losses have flowed into the reinsurance market over recent years, in respect of claims that could never have been envisaged at the time of writing the reinsurance contracts. A large number of these claims have originated in the USA, particularly with regard to product liability and, more especially, asbestos. The very size of these losses has threatened the existence of some reinsurance companies and syndicates, thus forcing them to take points and review claims in a manner which would never have occurred to them in the past.

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