Reinsurance: Follow The Settlements

Last week's Court of Appeal decision in Wasa International Insurance-v-Lexington Insurance Company may represent a shift in approach of the English judiciary towards attaching greater weight to the commercial intentions of the parties than to a strict interpretation of the language of a reinsurance contract.

Background

Lexington insured Alcoa's property. The period of insurance ran from 1st July 1977 to 1st July 1980. Lexington purchased facultative reinsurance with Wasa and AGF in respect of this underlying insurance for the same years and limit of liability.

Alcoa subsequently sought to recover remedial clean up costs from Lexington. The US Court held that Lexington was liable for these costs, irrespective of whether the damage was sustained before, during or after the inception date. Accordingly, damage prior to 1st July 1977 was not excluded. Lexington settled with Alcoa on this basis