AEGIS ELECTRICAL AND GAS INTERNATIONAL SERVICES CO LTD V CONTINENTAL CASUALTY CO

[2007] EWHC 1762 (Comm), Queen’s Division, Commercial Court, Mr Justice Andrew Smith, 25 July 2007

Reinsurance – Full reinsurance clause – Definition of risk in reinsurance – Whether definition overriding incorporation of direct policy wording – Follow the settlements – Whether clause unconditional – Whether reinsurers bound to accept settlement by reinsured as conclusive of coverage under reinsurance – Meaning of “explosion”

The assured was insured against all risks of physical loss to an oil refinery. The insurers were reinsured under a policy which was stated “To follow the terms, clauses, conditions, exceptions and settlements of the original policy wording as far as applicable hereto”. The reinsurance also incorporated Additional Conditions which provided a definition of “accident” as sudden mechanical breakdown, and “object” as any boiler. Loss by “explosion” was excluded. The assured suffered two losses: machinery designed to separate hydrocarbons from oil (Visbreaker) damaged by fire following a leak of oil; and damage to a reactor (DIAR) caused by internal overheating. The reinsured settled the claim and sought to recover from the reinsurers. Andrew Smith J held that the reinsurers were not liable to indemnify the reinsured for the loss of the Visbreaker but they were liable in respect of the DIAR.