Reinsurance

Follow the settlements and claims cooperation

It was established by the Court of Appeal in Insurance Company of Africa v Scor (UK) Reinsurance Co Ltd [1985] 1 Lloyd’s Rep 312 that where a reinsurance agreement contains a ‘follow the settlements’ clause and also a ‘claims cooperation’ or ‘claims control’ clause, the claims provision has priority over the settlements provision. Thus if the reinsured enters into a perfectly valid settlement, the reinsurers can refuse to follow it if the reinsured has failed to comply with the obligations imposed on it by the claims provision. That is, however, subject to the important consideration that the claims provision must be a condition precedent to the reinsured’s right of recovery. If the condition is not a condition precedent, then failure to comply on the part of the reinsured will not prevent reliance on the follow the settlements provision. The issue before the Court of Appeal in Eagle Star Insurance Co Ltd v Cresswell and others [2004] EWCA Civ 602, forthcoming in [2004] Lloyd’s Rep IR, was whether the claims provision used in the reinsurance agreement was a condition precedent.