Settlements: follow settlements clauses

Follow settlements clauses are used in a number of contexts. Reinsurers may, for example, agree to follow the settlements of reinsureds. Equally, insurers subscribing on a co-insurance basis may agree to follow the settlements entered into by the leading underwriter of the subscription. There is surprisingly little authority on the interpretation of follow settlements clauses in the latter context, and in particular it is unclear whether the leading underwriter owes any form of duty of care to following underwriters where a settlement made by the leading underwriter is binding on them.

In San Evans Maritime Inc and Others v Aigaion Insurance Co SA (The St Efrem) [2014] EWHC 163 (Comm) Teare J concluded that a follow settlements clause bound a following insurer even though the settlement entered into by the leading underwriter purported to exclude the following insurer.