In Tokio Marine Europe Insurance Limited v Novae Corporate Underwriting Limited [2014] EWHC 2105 (Comm), Mr Justice Field granted an application by Tokio Marine Europe Insurance Limited (Tokio) for summary judgment, holding that a defence raised by Novae Corporate Underwriting Limited (Novae) that the underlying settlement was entered into without the insured having taken all proper and businesslike steps had no reasonable prospect of success.

The case concerned the application of a follow the settlements clause to a payment made by Tokio to its reinsured, ACE European Group Ltd (ACE), following the settlement made by ACE with the original insured. A separate action involving the same parties dealing with the proper construction of the follow the settlements clause was reported here and that decision is currently on appeal. The present case concerned the application of the well-known “second proviso”; namely it involved the question of whether ACE had acted honestly and had taken all proper and businesslike steps in reaching the settlement in question.

Field J held that Novae’s argument that ACE, in reaching the underlying settlement, had failed to take all proper and businesslike steps had no prospect of success. His principal reason for making this finding was that the settlement reached (around £80m) was well below the projected final figure for the total adjusted loss (£90 to £100m). He held that in such circumstances, ACE was entitled to conclude that there was nothing to be gained by conducting further investigations as to possible coverage issues under the underlying policy. He added that on the assumption that Novae’s pending appeal on the construction issues fails “there is no good reason why the ordinary presumption that Novae as the reinsurer will follow the settlement of ACE as the reinsured should not apply.”