Follow the settlements

The obligation of reinsurers to follow the bona fide and businesslike settlements of their reinsured where the reinsurance agreement contains a follow the settlements clause is too well established to be doubted. In English and American Insurance Co Ltd v AXA Re SA [2006] EWHC 3323 (Comm) the reinsurers encouraged the reinsured to settle on the basis of a market agreement to which the reinsured had not been a party, and subsequently argued that there was no valid settlement or, if there was, that the settlement was not bona fide and businesslike. Gloster J dismissed the defences raised by the reinsurers. There was an initial procedural dispute as to the admissibility of offer letters from the reinsurers, the question being whether they were protected by the ‘without prejudice’ privilege afforded to settlement negotiations.