Reinsurance: Follow The Settlement Clauses

In a recent case the English High Court endorsed the benefit and good sense that a market settlement afforded reinsureds and reinsurers alike. The Court granted summary judgment in favour of a reinsured against a reinsurer permitting it to recover paid claims under back-to-back reinsurance. The underlying settlement which the reinsurer was requested to follow also comprised a settlement of future claims (including IBNR) as well as past and pending claims: summary judgment for amounts in respect of future claims including IBNR claims was not entered for the reinsured.

In summary English & American (E&A) entered into a settlement with its insured and sought in turn to recover a proportion of that settlement from Axa under back-to-back reinsurance. Axa refused to indemnify E&A, arguing that it was not required to follow the settlement because it was an interim good faith payment without admission of liability on a WP basis, under a full reservation of rights, and that there was no