Lexington V Wasa & AGF: the importance of governing law provisions

On Thursday 30 July 2009, the House of Lords handed down their long awaited decision in Lexington Insurance Company v Wasa International Insurance Company Limited & AGF Insurance Limited (2009). It is perhaps fitting that such a keenly anticipated judgment should also earn historic status for being one of the last seven rulings by the House of Lords prior to its demise to make way for the Supreme Court.In a dramatic conclusion to the long running saga, the House of Lords unanimously overturned the Court of Appeal’s decision and allowed the appeal of reinsurers, Wasa and AGF. Their Lordships held that reinsurers were not liable to indemnify Lexington under the terms of the facultative reinsurance. Ling Ong*, a Partner in the London Market Team of law firm, Weightmans LLP explains why the case highlights the importance of the governing law provisions in insurance and reinsurance contracts and why both reinsurers and reinsureds should take particular care in considering the wider ramifications of these clauses when entering into the reinsurance contract

The dispute related to an all risks difference in condition property damage insurance policy issued by Lexington to the Aluminium Company of America (“Alcoa”). Cover was stated to be for a three year period from 1 July 1977 and 1 July 1980. The insurance policy did not contain an express choice of law clause but included a standard US service of suit clause under which Lexington had agreed to “submit to the jurisdiction of any Court of Competent jurisdiction within the United States and … all matters arising hereunder shall be determined in accordance with the law and practice of such Court.”