IRB participated in an excess of loss reinsurance programme protecting CX Re’s casualty book of business worldwide between 1976 and 1983. Losses across 25 reinsurance contracts resulted in claims against IRB of US$1.6 million plus interest. Those policies bound reinsurers to follow settlements that were within the terms of (i) the original policies and (ii) the reinsurance. CX Re compromised the claims but IRB resisted payment.

In November 2008, the parties took eight larger claims to arbitration. The tribunal found the compromises “reasonable and businesslike” and noted that they had been “agreed, presented and almost universally supported/paid by the London market”. It awarded CX Re a total of US$665,055.

Decision

IRB appealed the awards in six claims relating to US liability insurance. The Commercial Court was asked whether the tribunal had applied the law correctly in three areas and concluded as follows:

  1. .A follow-the-settlements clause is designed to avoid investigating issues twice. The claimant reinsured must prove, on the balance of probabilities, that the original claim, i.e. the “arguable claim” as accepted (by compromise), fell within the terms of both the reinsurance and the insurance.

The arbitrators referred to the claims “falling arguably” within the underlying cover and noted that there was no requirement to “prove to an absolute standard” that the underlying policy would respond. Although the precise choice of words could be criticised, in substance they were applying the correct test and their decision should stand.

  1. .For a claimant to recover under a loss occurring policy, he must, “… satisfy the court that there has been physical loss or damage which has occurred in the year covered by the relevant contract of reinsurance”.  

Although the arbitrators did not expressly refer to the decision in Municipal Mutual Insurance Ltd v CSEA Insurance Co Ltd [1998], from which this passage derives, their conclusion that, in the absence of evidence to the contrary, it was appropriate to infer that losses occurred over a period of time, could satisfy the test.

  1. Axa Reinsurance (UK) plc v Field [1996] states that an “event” is distinct from a “cause” in the context of aggregation clauses. However, the arbitrators’ conclusion that, “the loss each year stemmed from a single cause” could not be challenged simply because they committed, in the words of the court, a “howler” when, in fact, they meant “event”.

Comment

The judgment in this case makes it clear that the Commercial Court thought the arbitral tribunal had reached the right conclusions, not least from a commercial perspective. It showed little sympathy for “technical” challenges to those conclusions based on the presentation of the award, rather than its substance.

Parties who succeed before arbitral tribunals should be encouraged by this decision, which suggests awards are less likely to be successfully challenged solely on their form, where the substantive law is in their favour.