Lloyd's Maritime and Commercial Law Quarterly
REINSURANCE—FOLLOW SETTLEMENTS AND CLAIMS CO-OPERATION CLAUSES
Insurance Co. of Africa v. SCOR (U.K.) Reinsurance Co. Ltd.1
A warehouse, which was leased by a company called Africa Trading Co. (Liberia) Ltd. (“ATC”) from the Liberian Government, was totally destroyed by fire. ATC held a fire insurance policy with a sum insured of $3,500,000 with the Insurance Co. of Africa (“ICA”). The reinsurance was placed with SCOR and the sum reinsured was 98.6 % of the sum insured.
The reinsurance slip contained a full reinsurance clause and a claims co-operation clause which stated that it was a condition precedent to liability under the reinsurance that all claims be notified immediately to reinsurers. The clause went on to say:
the Reassured hereby undertake in arriving at the settlement of any claim, that they will co-operate with Reassured Underwriters, and that no settlement shall be made without the approval of the Underwriters subscribing to this Policy.
There was also a “follow settlements” clause which provided that SCOR would follow the settlements of the ICA.
ICA wanted to settle ATC’s claim but SCOR refused to approve any settlement because it had received allegations that the claim was fraudulent. ATC, in an effort to obtain its money from ICA, commenced proceedings in Liberia claiming $3,500,000 damages together with interest, general damages and costs. Despite ICA’s efforts to persuade SCOR to approve a settlement of the matter, SCOR refused to do so. ICA did not have enough evidence to plead or prove fraud and SCOR refused to assist them. Because of the claims co-operation clause in the reinsurance policy, ICA needed SCOR’s approval to settle. Therefore ICA had little choice but to defend the proceedings as best it could. The court returned a verdict for ATC, awarding it $3,500,000 special damages, $600,000 general damages and $58,000 in costs.
The plaintiffs, ICA, then settled the claim and sought to recover from the defendants their share, but the defendants denied liability. It was held by Leggatt, J., that since the defendants had withheld approval of the settlement with the result that the reinsured was obliged to resist the claim the intention must have been that the reinsurers would bear the cost at least to the extent of their proportion of the risk. The defendants, SCOR, appealed.
It was held, allowing the appeal, that:
1. If one were just considering a “follow settlements’ clause on its own, all the reinsured would have to do would be to act in an honest and businesslike manner in dealing with the claim and the fact that it was later proved to be a fraudulent claim would not absolve the reinsurers from following the settlement. However, the claims co-operation clause had to be read together with the “follow settlements” clause.
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