Reinsurance: following settlements

The decision of Flaux J in AstraZeneca Insurance Co Ltd v XL Insurance (Bermuda) Ltd and Another [2013] EWHC 349 (Comm) discusses a number of important points relating to the obligation of a reinsurer to follow the reinsured’s settlements in circumstances where there is a doubt as to the reinsured’s liability to do so.

The point arose in the context of claims under a liability policy, the claims being settled when it was not clear that the assured was liable to claimants. The reinsured nevertheless indemnified the assured and sought to recover from the reinsurers. The decision makes it clear that it is the duty of the reinsured to show that the assured’s liability had been established and quantified as a matter of law.