Beazley Underwriting Ltd. v. Al Ahleia Ins. Co., [2013] EWHC 677 (Comm), available at http://www.bailii.org/ew/cases/EWHC/Comm/2013/677.html.

The English High Court has considered a claims cooperation clause in a reinsurance contract and rejected the reinsurer’s argument that it barred the cedant’s recovery.

The clause in question provided,

[I]t is a condition precedent to any liability under this Reinsurance that:

. . .

  1. . . . the Reinsurers shall have the right to . . . control all negotiations, adjustments, and settlements in connection with such loss or losses.
  2. No settlement and/or compromise shall be made and no liability admitted without the prior approval of Reinsurers.

The cedant had insured a contract for construction of crude oil storage tanks. One of the tanks was defective and a claim was made against the cedant, which in turn notified its reinsurers. The cedant conducted the defence of the insured. One of the reinsurers, Beazley, referred to telephone dealings between the cedant and the insured, and to internal documents of the cedant, and argued that Beazley had no liability because the cedant had committed various breaches of the claims cooperation clause.

The judge found that there had been no breach of the clause and that the clause did not prevent the cedant’s recovery. As to paragraph (b) of the clause, there had been no breach because (1) telephone dealings between the cedant and the insured did not amount to negotiations, still less to an agreement; and (2) a document cited by the reinsurer was an internal document of the cedant which had not been intended for, or sent to, the insured. As to paragraph (c), there had been no breach because (1) no settlement, compromise, or admission of liability had occurred in the cedant’s telephone call with the insured; (2) an internal memorandum of the cedant did not in itself amount to a settlement, compromise, or admission of liability; and (3) the cedant’s communications related to the reinsured’s own retention and the liability of a different reinsurer, and not to a loss which was reinsured by the reinsurer in question.

This case turns largely on its facts, but is of interest because it follows the approach taken in Royal & Sun Alliance v. Dornoch Ltd., [2005] EWCA Civ 238, whereby a claims cooperation clause is treated as an exemption clause and is construed narrowly against the party seeking to rely on it.