Thursday, 13 March 2008

Spirit or Letter of the Contract?

Law firm Barlow, Lyde & Gilbert LLP wrote an excellent story concerning the relationship between the reinsurance contract and the original insurance contract. We covered it in Advisen Front Page News Europe today (see here).

The English Court of Appeals ruled in favor of the reinsured (a ceding insurance company from the U.S.) over the London market reinsurer in saying that the spirit of the reinsurance contract was to match the coverage terms of the original insurance contract.

Never mind that the case deals with the original insurance companies having to pay for losses which occurred outside the term of the insurance contract. The ruling is an important one for the London reinsurance market signalling that where the insurance company pays the reinsurance company must honor the legal ruling that led to this payment.

Being an American in London, I particularly enjoyed the following conclusion from the article:

"Reinsurers' arguments in the present case had a whiff of an assertion (although they were careful not to say so expressly) that Lexington were an American Corporation and had therefore to take unsatisfactory decisions on the chin, while reinsurers were English (or doing business in the English market) and could not be expected to do so. That, of course, will not do."

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