TOKIO MARINE EUROPE INSURANCE LTD V NOVAE CORPORATE UNDERWRITING LTD

[2014] EWHC 2105 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Field, 2 July 2014

Reinsurance - Follow the settlements - Whether reinsured under a duty to investigate coverage of policy and facts underlying claim

This was an application for summary judgment. ACE were the insurers of Tesco under a policy which responded to the floods in Thailand in 2011. Claims adjusted at between £90 million to £100 million were settled by ACE for £80 million on the basis that there was only one "occurrence" and only one deductible under the policy. TMEI, ACE's reinsurers, accepted the settlement and sought to recover from its retrocessionaires, Novae, under a facultative excess of loss contract under which Novae agreed that it would "follow all settlements (excluding without prejudice and ex-gratia payments)". Novae argued that TMEI had failed to satisfy the follow the settlements clause because it had not taken either legal advice from Thai lawyers as to the meaning of the underlying policy or scientific evidence in respect of the weather patterns and of the other possible causes of the floods. Field J held that TMEI was entitled to summary judgment. Even if Novae was right that more than one deductible should have been borne, that made a difference of about £14 million only, so a settlement at £80 million meant that Novae had suffered no loss and indeed was very favourable. TMEI had been entitled to conclude that there was nothing to be gained by further investigation into coverage under the original policy. Field J rejected the argument that a failure to take the steps required by a follow the settlements clause defeated the claim even though such steps would not have affected the outcome.