This edition provides an update of recent developments of interest to the global reinsurance industry.

US Case Note

Grounds for vacating arbitral awards are few, but the United States Court of Appeals for the Sixth Circuit recently confirmed that improper ex parte communications may be one of them. Applying Michigan law, the appellate court reversed the district court and vacated two arbitral awards on the ground that ex parte communications between a party-appointed arbitrator and outside counsel violated the terms of the parties’ arbitration agreement. Star Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, PA, No. 15-1403, 2016 US App. LEXIS 15306 (6th Cir. Aug. 18, 2016).

In Star Insurance, the underlying dispute arose out of a reinsurance arbitration in which the panel was comprised of two party-appointed arbitrators and an umpire. The panel issued two separate scheduling orders in which ex parte communications were to cease upon submission of the initial pre-hearing briefs. Neither order provided for when such communications could again resume.

During the proceeding, the panel issued an interim final award on July 23, 2013 in the reinsurer’s favor. Part of the award required the cedent to provide follow-up information that had the potential of greatly increasing its liability to the reinsurer. That same day, after the award was issued, the reinsurer’s party-appointed arbitrator engaged in ex parte communications with the reinsurer’s outside counsel about the interim award. The two later engaged in additional ex parte communications, including after the cedent filed its supplemental brief. Thereafter, the panel issued another interim award in the reinsurer’s favor. All of this transpired prior to the issuance of the final award one year later, which was also in the reinsurer’s favor.

The case before the Sixth Circuit involved a complex procedural history with three separate district court orders challenged on appeal, but the decision to vacate the arbitral awards was ultimately dispositive of all issues. The reinsurer argued that the Panel’s scheduling orders had been silent on the issue of when ex parte communications could resume, and that the common industry practice is that a ban on these communications ends after a dispositive ruling on the merits. The court disagreed, noting that ARIAS Rule 15.5 provides that parties should not communicate ex parte with the panel until a final award is issued, thereby demonstrating that common industry practice was different than the reinsurer had alleged.

The court applied Michigan Court Rule 3.602(J) and found that the ex parte communications provided grounds for vacatur under subpart (2)(b),where an arbitrator has engaged in “misconduct prejudicing a party’s rights.” The court also relied on Michigan case law, which generally provides that ex parte communications void an arbitral award where they violate the parties’ arbitration agreement—regardless of a party showing prejudice. In vacating the awards, the court expressly did not require a showing of prejudice but found instead that the communications plainly violated the scheduling orders.

London Case Note

AIG Europe Ltd v OC320301 LLP and others1

The Court of Appeal has recently provided further guidance in relation to the test for aggregation of claims, in particular, the phrase "series of related matters or transactions."

The Court of Appeal held that the wording required at least some intrinsic connection between the matters or transactions, before aggregation could occur.

Factual Background

A firm of solicitors (TILP) had been engaged by a property development company (Midas) in relation to the development of holiday homes in Turkey and Morocco. TILP received deposits from investors pursuant to a deed of trust, which provided that TILP would not release the deposits to Midas until a certain level of security was in place and a particular test (the cover test) was met.

The property developments failed, Midas was wound up, and the investors (represented by the trustees of the relevant trusts) claimed against TILP for alleged losses in excess of £10 million. The investors' case was that had TILP had failed to put in place an effective form of security and/or had failed to apply the cover test properly when it released the deposits from the escrow account.

Insurance Policy Provisions

TILP had professional indemnity insurance with AIG. The policy incorporated the Solicitors Regulation Authority Minimum Terms and Conditions of professional indemnity insurance for solicitors (MTC), with a limit of liability of £3 million for any one claim. Clause 2.5(a)(iv) provided that “All Claims against any one or more Insured arising from similar acts or omissions in a series of related matters or transactions will be regarded as One Claim.”

First Instance Decision

AIG sought a declaration that the claims brought by the investors against TILP arose from “similar acts or omissions in a series of related matters or transactions” and were, therefore, to be aggregated and treated as a single claim (with a single limit of cover). The trustees (on behalf of the investors) opposed that claim for declaratory relief.

In the Commercial Court, Teare J. decided that, on a proper construction of the aggregation provision in the insurance policy, the underlying claims were not to be aggregated as one insurance claim. He found that the claims against TILP arose out of “similar acts or omissions”. However, in order for those claims to be aggregated as a single claim under the insurance policy, the various transactions in issue had to be within “a series of related matters or transactions”: the various transactions were not conditional or dependent upon each other, and therefore this requirement was not satisfied and there was more than one “claim” for the purpose of the policy.

The Appeal

AIG appealed to the Court of Appeal solely on the meaning of the words “in a series of related matters or transactions” in clause 2.5(a)(iv).

The Court of Appeal (Longmore LJ, Kitchin LJ and Vos LJ) upheld AIG’s appeal, and remitted the case to the Commercial Court to apply the aggregation clause correctly.

The judgment of the court (given by Longmore LJ) held that Teare J had set too high a bar when he stated that claims were to be aggregated only if the matters or transactions were “dependent on each other.” There could be degrees of connection (or inter-connection) between matters or transactions which were less than “dependence” but which could still satisfy the aggregation clause’s test of the matters or transactions being “related”.

However, the Court of Appeal rejected AIG’s argument that any degree of relatedness between the matters or transactions would be sufficient for the claims against TILP to aggregate. That basis of aggregation was “impossibly wide.” Moreover, if the parties had intended aggregation to be on such a broad basis, they would have used an aggregation clause which was more broadly worded. The court had regard to the published history of the origin of the aggregation clause, which it considered sustained the argument that the phrase “a series of related transactions” was not to be construed in such a manner that any relation, however loose, would suffice.

The words “in a series of matters or transactions” required that the matters or transactions have some “intrinsic” rather relationship with each other: in other words, there must be a relationship of some kind between the transactions in question, rather than a relationship with some outside connecting factor.


Aggregation clauses often give rise to difficulties, and in each case the particular wording must be considered carefully. The Court of Appeal decision provides clarity that, where a clause provides for the aggregation of claims relating to acts or omissions "in a series of matters or transactions," in order for the claims to be aggregated there must be have an intrinsic relationship between the matters/transactions (rather than an extrinsic relationship with some outside connecting factor).

London Regulatory Update

The Insurance Act 2015 - late payment of insurance claims

The Insurance Act 20152 (the Insurance Act), which came into force on August 12, 2016, has been amended to address the issue of damages for late payment of claims by (re)insurers. In non-consumer insurance contracts, it is possible to contract out of the new position.

The amendment, introduced as part of the Enterprise Act 2016 (the Enterprise Act), inserts a new Section 13A into the Insurance Act which imposes an implied term in every contract of insurance that the insurer must pay a claim within a reasonable time. A breach of the implied term will entitle an insured to claim damages, provided that causation is established, i.e. an insured will have to prove that: (1) it has a valid claim under the policy, (2) the insurer has failed to pay within a reasonable time, (3) the insured suffered loss, which was caused by the insurer’s breach of the implied term, and (4) the loss was foreseeable. Further, the insured will not be able to recover any loss which could have been avoided by taking reasonable steps.

Subsection (5) clarifies that such remedies are in addition to and distinct from the right to the amount payable under the insurance in respect of the original claim and the right to claim interest.

This amendment will not come into force until May 4, 2017 and will apply to all insurance and reinsurance contracts entered into on or after that date. The amendment will over-rule the position under Sprung v. Royal Insurance [1997], whereby an insurer could not be liable in damages, even for deliberate late payment of claims and an insured’s redress for late payment was limited to the additional payment of interest.

Claims for breach of the implied term must be brought no later than one year from the date on which the insurer has paid all the sums due in respect of the claim.

A significant area of uncertainty is what constitutes a “reasonable time” to pay out a claim. The Enterprise Act states that a reasonable time includes time to investigate and assess the claim and provides a non-exhaustive list of factors that may influence a court, including (a) the type of insurance, (b) the size and complexity of the claim, (c) the insurer’s compliance with relevant statutory or regulatory rules or guidance, and (d) factors outside the insurer’s control.

Section 13A (4)(b) provides that the insurer’s conduct of the claims handling process could be taken into account in assessing whether a claim has been paid promptly. The court may refer to case law from other jurisdictions to interpret this matter. Australian courts, for example, have historically implied a term into all insurance contracts that the insurer must perform its obligations within a reasonable time and have indicated that valid claims should be paid within a matter of several months, depending on when the insurer received key information regarding the claim (see, for example, Moss v. Sun Alliance Ltd (1990) 55 SASR145 and Tropicus Orchids Flowers and Foliage Pty Ltd v. Territory Insurance Office [1997] NTSC 46)

The impact of the amendment is likely to be limited by the “reasonable grounds” defense available under subsection (4), which states that if the insurer shows that there were reasonable grounds for disputing the claim (either as to liability or quantum) the insurer does not breach the term merely by failing to pay the claim pending the dispute. However, the insurer has the burden of proving this defense, and whether or not the defense is applicable on the facts of any particular case may be difficult to determine with certainty.

In non-consumer insurance contracts, this part of the Enterprise Act can be contracted out of, but certain transparency requirements must be met and the insurer’s breach must not be deliberate or reckless.


Section 13A exposes insurers to the risk of having to pay damages in addition to any coverage due under the insurance policy. Insurers may wish to consider whether their reinsurances cover that risk, particularly where the reinsurer is entitled to control how insurance claims are handled and could thereby cause the insurer to be liable for damages to the policyholder.

China Market Update

China's first insurance exchange platform, Shanghai Insurance Exchange, was officially launched in Shanghai on June 12, 2016. The Exchange has an initial registered capital of RMB2.235 billion (US$340 million) which was contributed by 91 companies, including the following insurance companies: China Life, PICC, Pingan, China Re, Anbang, Taiping and Taikang. The establishment of the Shanghai Insurance Exchange is a significant implementation milestone for the State Council’s Several Opinions on Accelerating the Development of the Modern Insurance Service Industry published in August 2014. The Exchange is expected to facilitate trading of insurance and insurance derivatives, with a focus on international reinsurance, shipping insurance, bidding for mega insurance transactions and special risk insurance. According to a vice chairman of the China Insurance Regulatory Commission, the Exchange is tasked with aligning local businesses with global insurance practices and diversifying channel risks outside of the domestic insurance market through capacity in the capital markets.