Reinsurance - Pay to be paid and IBNR

(Cleaver and Bodden v Delta American Reinsurance Co [2002] Lloyd’s Rep IR 167)

As far as English law is concerned, it now seems to be settled that the obligation on reinsurers to indemnify the reinsured arises as soon as the reinsured’s liability to its policy holders has been established and quantified. Actual payment by the reinsured is not required, and indeed express terms which appear to require prepayment will be construed narrowly. However, the law is not the same in all jurisdictions, a point demonstrated by the decision of the Judicial Committee of the Privy Council in Cleaver and Bodden v Delta American Reinsurance Co [2002] Lloyd’s Rep IR 167 . This was an appeal from the Cayman Islands Court of Appeal, and involved reinsurance governed by New York law. The case also discusses the obligation of reinsurers to make payment for future losses likely to be faced by the reinsured – losses incurred but not reported (IBNR). The status of IBNR in English law is not clear, at least in part because there is no consistent definition of what is included in IBNR, which may range from losses which have been suffered but which have yet to be claimed from reinsurers, to mere anticipation of possible future losses which experience shows are likely to become apparent at some later date.