LEXINGTON INSURANCE CO V MULTINACIONAL DE SEGUROS SA

[2008] EWHC 1170 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Christopher Clarke, 23 May 2008

Reinsurance – Claims co-operation clause expressed to be condition precedent – Reinsurers denying liability for breach of condition but continuing to negotiate with reinsured – Whether reinsured subsequently in breach of condition by waiving a time-bar defence against the assured – Authority of reinsured’s agent – Whether reinsurers had waived compliance with the claims condition

Multinacional, a Venezuelan insurer, had – acting as a front for reinsurers – issued property and business interruption cover to a number of companies in the CVG Group. Seven separate reinsurance slips (each held by the judge to be an independent contract of reinsurance) were issued, and it was common ground that each contained a claims co-operation clause which made it a condition precedent that the reinsured would advise the reinsurers of any claim and co-operate with its settlement. A loss occurred on 16 April 1998, and on 7 January 2000 the reinsurers informed the reinsured, without prejudice, that the reinsured was in breach of the clause so the reinsurers were not liable under the policy. The parties nevertheless remained in contact despite the reinsurers issuing proceedings in England for negative declaratory relief. On 16 April 2001 the limitation period for the claim against the reinsured expired. On 22 January 2002 the English proceedings were stayed by order, on the basis of agreement by the reinsured that it would rely upon the time-bar defence. On 3 April 2002 the reinsured wrote to the CVG in terms which the reinsurers asserted amounted to an express waiver of the limitation defence and thus a breach of the claims co-operation clause. Christopher Clarke J held, on the trial of preliminary issues, that: (1) the letter did amount to a breach of the claims condition, in that it was written by a person within the reinsured’s organisation who was authorised to write it and that it expressly waived the limitation defence; (2) the reinsurers had not, by their letter of 7 January 2000, elected not to rely upon any future breach of the claims condition – the doctrine of election required the reinsurers to choose between two conflicting courses of action, but if the allegation was breach of condition precedent then the claim was automatically lost and there was no choice to be made; (3) the proper construction of the reinsurers’ letter of 7 January 2000 was that they were not rejecting the claim absolutely in a way which justified future non-compliance with the claims condition.