Forsikringsaktieselskapet Vesta v. Butcher

The decision of Hobhouse, J., in Vesta v. Butcher 1 has been approved by a unanimous Court of Appeal.2 The plaintiff, a Norwegian insurance company, had insured the owner of a fish farm in Norway and had reinsured its liability at Lloyd’s. Both the original policy and the reinsurance wording had been developed by London brokers (who regarded aquacultural insurance as potentially lucrative) and had been agreed with the reinsurance underwriters. The intention was, seemingly, to be able to provide a standard package for the insurance and reinsurance of fish farms worldwide, the benefits of which would ultimately accrue to the London market. The evidence demonstrated that the London brokers had been instrumental in arranging both the insurance and reinsurance in this case, as well as in having settled the wordings of both agreements, although the brokers were acting formally only as the agents of Vesta in arranging reinsurance. Under the original policy, which was unarguably governed by Norwegian law, the assured warranted that a 24-hour watch would be maintained over the fish farm. The assured had objected to the inclusion of this warranty, and Vesta had communicated this objection to the brokers, but the warranty remained in place. The original insurance also contained a “claims control” clause, by virtue of which, in the event of a loss, no payment, offer or compromise could be made without the consent of the underwriters, who were to have sole control of all negotiations. The reinsurance agreement incorporated the terms of the original policy, imposed a 10% retention on Vesta and provided that the underwriters would follow the settlements of Vesta.