ARTICLE · 15 SEPTEMBER 2009

Reinsureds Beware

DLA Piper Australia

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“Lexington Insurance Company v AGF Insurance Limited"; "Lexington Insurance Company v Wasa International Insurance Company Limited” [2009] UKHL 40 confirms that where the laws of the insurance and reinsurance contract differ, it is no longer safe to assume that cover under a facultative reinsurance contract incorporating the terms of the underlying insurance contract will be ‘back-to-back’.

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Lexington Insurance Company v AGF Insurance Limited; Lexington Insurance Company v Wasa International Insurance Company Limited [2009] UKHL 40 confirms that where the laws of the insurance and reinsurance contract differ, it is no longer safe to assume that cover under a facultative reinsurance contract incorporating the terms of the underlying insurance contract will be 'back-to-back'. The decision has implications for Australian reinsureds who reinsure in the London market.

Key Points:

A reinsured must establish its liability under the insurance contract and also that the loss is within the risk assumed under the reinsurance contract.
One interpretation of Lexington v Wasa is that where insurance and reinsurance contracts differ in terms of governing law, and the legal position on a term in an underlying contract is unascertainable in the jurisdiction governing the underlying contract, then that term is not incorporated into the reinsurance contract.

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