Wasa International Insurance Co Ltd v Lexington Insurance Co AGF Ltd - scope of reinsurance cover

[2007] EWHC 896 (Comm)

A “follow the settlements” clause and the back-to-back nature of the insurance and reinsurance contracts are not sufficient to displace the importance of the requirement that the relevant loss must fall within the scope of the reinsurance contract. The reinsurance contract in this case could not be construed so as to provide cover for the costs of remedying damage both before and after the policy period merely because some damage occurred within the policy period.

Comment: the judge distinguished Vesta v Butcher and Groupama Navigation et Transports v Catatumbo CA Seguros which endorsed the presumption that the scope and nature of the reinsurance cover afforded will be the same as the cover afforded by the insurance. He drew a distinction between those terms which will be construed on a back-to-back basis in facultative reinsurance and those which are so fundamental that the presumption will not apply. The period of cover in the policy was of this fundamental type and the reinsurance could not provide cover for losses occurring outside that period since reinsurers had only agreed to reinsure Lexington “during the continuance of the policy”. The judge refused to give Lexington permission to appeal but they are understood to be seeking permission from the Court of Appeal.