LG highlights effects of recent important reinsurance cases
15 March 2006
Held at Lloyd's of London and attended by approximately 150 delegates, a seminar hosted by law firm LG on 15 March looked at the practical implications of some of the most important recent cases affecting the reinsurance industry.
According to Nick Bradley, Head of LG's Insurance & Reinsurance Group, the last 12 months has seen a significant number of important decisions affecting the reinsurance industry on a range of issues.
William Sturge, partner in the Insurance & Reinsurance Group, looked at the UK Courts’ changing approach in the recent Court of Appeal decision in Bonner v Cox and the Commercial Court decision in ERC Frankona v Amercian National.
On Bonner v Cox, Sturge suggested that the Court of Appeal's retreat from any implied term as regards the standard of underwriting to be expected of a reinsured, "reflects a willingness on the part of the courts to revisit the early case law on reinsurance. That was handed down during the period when the courts were first grappling with an uncharted industry that they understand better now, after 20 years of reinsurance disputes coming before them."
Sturge went on to suggest that the Court of Appeal's decision also seemed to reflect the fear of opening the floodgates to expensive and time-consuming "retrospective underwriting", every time a serious loss is suffered.
On the ERC Frankona decision, Sturge suggested that there seemed to be a whiff of opportunism about ERC's avoidance on the grounds of the failure to disclose a 15 year old fraud conviction of an officer of the underwriting agent used by American National. However, the decision should more properly be seen as reflecting a different atmosphere on moral hazard, as compared with the cases of the 1990s. Sturge suggested that this reflected a changed regulatory approach requiring greater transparency, and the perception that fraud in the industry is becoming more widespread.
David Breslin, also a partner in the Insurance & Reinsurance Group, then addressed the recent decisions affecting brokers' duties, liabilities and remuneration. Most important amongst these was the recent Court of Appeal decision in Goshawk v Tyser where the Court found that there is an implied term in all contracts of insurance (and reinsurance) placed in Lloyd's which entitles underwriters to obtain the brokers’ placing and claims information which they have previously seen, and an implied contract between broker and underwriter to the same effect.
However, Breslin pointed out that the Court of Appeal had been asked to reconsider the findings in the earlier Commercial Court decision against the background of having to consider a new argument, not previously advanced by the syndicates. In finding that an implied term existed in contracts of insurance the Court was then able to find that an implied contract also existed between brokers and underwriters in the Lloyd's market, thus reflecting the modern position expressly set out in standard Terms of Business Agreements. As for whether the decision has force in the companies' market in London, Breslin suggested that "although the case was specific to Lloyd's it would be surprising if the companies' market was to be treated differently where a mixed Lloyd's and companies market insures/reinsures the same risk".
Notes to editors
LG is a London based law firm with over 270 lawyers. It offers commercially based legal solutions across a wide range of expertise. Its Insurance & Reinsurance Group comprises lawyers of diverse backgrounds with considerable experience and understanding of the international and London markets. They handle litigation, arbitration and dispute resolution and also advise on transactional and corporate issues confronting the live and run-off markets.